The relationship between the real estate and stock markets of China: evidence from a nonlinear model

Yu-Shao Liu and Chi-Wei Su

Applied Financial Economics, 2010, vol. 20, issue 22, 1741-1749

Abstract: The use of asymmetrical threshold cointegration tests is adopted in this study to investigate whether any significant relationship or asymmetric adjustment exists between the real estate and stock markets of China. Our results indicate the existence of a long run nonlinear relationship between the Shenzhen Composite Index and the Real Estate Price Index. In the short run, the Granger causality test favours the 'wealth effect' hypothesis; conversely, in the long run, the existence of the 'credit price' effect is discernible above a certain threshold value, whilst the 'wealth effect' is apparent below this threshold value, which implies a bidirectional feedback causal relationship. Our empirical results demonstrate that in the long run, the price transmissions between these two markets are nonlinear and asymmetric.

Date: 2010
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DOI: 10.1080/09603107.2010.524616

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