Influence Mechanism of Contagion Effect of Asset Price Bubble between Markets—Take the Real Estate Market and the Stock Market, for Example

Wu Jiadong ()
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Wu Jiadong: Dongguan University of Technology, Investment Science

A chapter in Proceedings of the 2023 International Conference on Finance, Trade and Business Management (FTBM 2023), 2023, pp 392-402 from Springer

Abstract: Abstract With the strengthening of macroeconomic regulation in the real estate market and the stock market being at a historically low valuation, there is an urgent need to study the mechanism of bubble contagion effects between the two markets. This study primarily measures the asset price bubbles in the real estate market and the stock market using two sets of variables. It aims to explore the short-term and long-term interactive relationship of bubbles between the two markets. After preprocessing the data, the Augmented Dickey-Fuller (ADF) unit root test is conducted to ensure the stationarity of the time series. Subsequently, an Error Correction Model (ECM) is established to test for the long-term equilibrium relationship among the variables. Based on the analysis results of the Vector Error Correction Model, it is concluded that there exists a cointegration relationship between the real estate market bubble and the stock market bubble, with a negative long-term equilibrium impact on each other. This conclusion provides valuable investment advice for investors in both markets, suggesting different strategies for long-term and short-term investments, and holds significant practical value.

Keywords: Asset price bubble; Contagion effect; Vector Error Correction Model (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-298-9_43

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DOI: 10.2991/978-94-6463-298-9_43

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