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Journal of Economic Interaction and Coordination

, Volume 14, Issue 4, pp 741–760 | Cite as

Are the stock and real estate markets integrated in China?

  • Chi-Wei Su
  • Xiao-Cui YinEmail author
  • Hsu-Ling Chang
  • Hai-Gang Zhou
Regular Article

Abstract

This paper examines the dynamic short-run and long-run co-movement between the real estate and stock markets in China by employing a continuous wavelet method. We use gross domestic product and M2 (broad money supply) as control variables to eliminate the common factors of the two markets and to identify the real nexus between them. The empirical results show that the co-movement between real estate and stock prices is weak in the short run, except during the financial crisis period. Since the stock market is highly volatile, while real estate prices are relatively stable, the two markets are less correlated in the short run. The results also show that real estate prices affect stock prices in the long run, which supports the existence of a credit-price effect in China. Real estate prices remained very high in most time periods. Enterprises and individuals can obtain funds from bank loans to invest in the stock market, thus raising stock prices. These findings indicate that the two markets are generally segmented in the short run but are integrated in the long run. The stabilization of the real estate market is critical for stability in the stock market, but not vice versa. Additionally, investments in the two markets may not provide a high level of risk dispersion in the long run in China.

Keywords

Credit-price effect Wealth effect Substitution effect Co-movement Time frequency 

JEL Classification

G12 E44 R31 

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Chi-Wei Su
    • 1
  • Xiao-Cui Yin
    • 2
    Email author
  • Hsu-Ling Chang
    • 3
  • Hai-Gang Zhou
    • 4
  1. 1.School of EconomicsQingdao UniversityQingdaoChina
  2. 2.Science and Information CollegeQingdao Agriculture UniversityQingdaoChina
  3. 3.Department of Accounting and InformationLing Tung UniversityTaichungTaiwan
  4. 4.Department of FinanceCleveland State UniversityClevelandUSA

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