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The Dynamics of Volatilities between Stock Market &Real Estate Market CHEN Rui 1 TONG Guangrong 2 DENG Qizhong 2 1 Department of Real Estate & Construction,

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Presentation on theme: "The Dynamics of Volatilities between Stock Market &Real Estate Market CHEN Rui 1 TONG Guangrong 2 DENG Qizhong 2 1 Department of Real Estate & Construction,"— Presentation transcript:

1 The Dynamics of Volatilities between Stock Market &Real Estate Market CHEN Rui 1 TONG Guangrong 2 DENG Qizhong 2 1 Department of Real Estate & Construction, The University of Hong Kong. HKSAR 2 Economics and Management School of Wu Han University, Hubei, Wuhan, China

2 Introduction 1 Introduction With a focus on the instability of Chinas stock market and real estate market during the period between 2001 and 2008, this paper aims to apply the econometric model to investigate the fluctuating transformation effect between the two economic markets.

3 Literature Review 2 Literature Review Since the 90s of the 20 th century, many scholars had conducted extensive investigation on the relationship between stock market and real estate market. Many investigations from China ignored a significant feature – there are two obvious different volatility timeframes between Chinas stock market and real estate market and during which their development speeds, fluctuating intensity and interactive impact varied greatly.

4 Empirical Analysis 3.1Data Description The monthly board turnover of SSE A & B shares ( WIND DB ) The monthly sales volume of the commercial apartments (DB of China economic internet ) LNH and LNS stand for the new series of transformed sales volume and trading volume after Logarithmic transformation.

5 Empirical Analysis 3.2 Stationary and Cointegration Test Table 1 Unit root test of LNH and LNS Sample VariableType (C,T,K)ADF-statistics LNH(C,T,11) DLNH(C,T,19) ** LNS(C,0,11) DLNS(C,T,28) *** LNH(C,T, 0) DLNH(C,T, 0) ** LNS(C,T, 0) DLNS(C,0, 0) *** Note: ***, **, * stand for rejection of the non-hypothesis at 1%, 5% and 10% significant level. (C, T, K) stands for the unit root test equation. D is the first order difference.

6 Empirical Analysis Table 2 Johansen Cointegration test of LNH and LNS Sample Hypothesized Eigenvalue Trace0.05 Probability No. of CE(s)StatisticCritical Value None* At most Trace test indicates 1 cointegration at the 0.05 level Trend assumption: Linear deterministic trend None At most Trace test indicates no cointegration at the 0.05 level Trend assumption: Linear deterministic trend

7 Empirical Analysis 3.3 Granger Causality Test Table 3 Granger Causality test of LHS and LNH Sample Null HypothesisLagsObsF-StatisticProbability LNS does not Granger Cause LNH LNH does not Granger Cause LNS *** LNS does not Granger Cause LNH LNH does not Granger Cause LNS

8 Empirical Analysis 3.4 Generalized Impulse Response Function Figure 1 GIR function between stock market and real estate market during May and Dec.2006 Figure 2 GIR function between stock market and real estate market during Feb and Sep. 2008

9 Conclusion In the two separate time regions, China stock market and real estate market show obvious inconsistency in linkage graph. In the two continuous time spans from May.2001 to September.2008, there is a one-way causal relationship between rising real estate market and China stock market downturn, merely in the first time region.

10 References 1] Sheng Songcheng,Li Anding,Liu Huina. Analysis of the correlation between real estate cycle and financial statues [J]. Shanghai Finance, 2005, 6:4-7. [2] Zhao Jian. Comparison of the price fluctuation in real estate and stock markets[J]. Shandong Social Sciences, 2007, 2: [3] Shen Jun,Bai Qinxian. The volatility and relation of fictitious economy in China[J]. Finance & Trade Economics, 2008, 9: [4] Hu Xiaofang,Wang Xiaoyin. Comparison of the wealth effect in housing and stock price[J]. Lanzhou Academic Journal,2008,1: [5] Xie Baohua. An economics analysis of the sheep flock effect in China's real estate market and stock market[J]. Journal of Guangdong University of Business Studie, : [6] Wang Guogang. An analysis of the excess liquidity in China's banking system[J]. Finance & Trade Economics, 2008, 6:5-15. [7] Stone, D. Ziemba, W.T.Land and Stock Prices in Japan[J].Journal of Economic Perspectives,Summer 1993, [8] Okunev,J.&P.Wilson.The Causal Relationship Between Real Estate and Stock Markets[J].Journal of Real Estate Finance & Economics,2000,21: [9] Chen, N, K..Asset price fluctuations in Taiwan: Evidence from stock and real estate price 1973 to 1992[J].Journal of Asian Economics, 2001,12: [10]Pesaran,M. Hashem & Yongcheol Shin..Impulse response analysis in linear multivariate Models [J].Economics Letters, 1998, 58: [11]Cochrane,J.H.Time Series for Macroeconomics and Finance[M].University of Chicago,2005. [12]Engle R F,Granger C.W.J..Cointegration and Error-Correction Representation,Estimation and Testing[J].Ecomometrica,1987,2: [13]Granger C.W.J.Some Recent Developments in A Concept of Causality[J].Journal of Econometrics,1988,39: [14]Johansen,Sorer and K.,Juselius..Maximum Likelihood Estimation and Inference on Cointegration with Application to the Demand for Money[M].Oxford Bulletin of Economics andStatistics,1990,52: [15]Johansen,Soren.Statistical Analysis of Cointegration Vector[J].Journal of Economic Dynamics and control,1988,12: [16] Stock J.H and Waston,M.W.A simple MLE of Cointegrating vectors in higher order integrated systems[N],1989,NBER working paper.


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