Do Capital Flows Matter to Stock and House Prices? Evidence from China

Ling Feng, Ching-Yi Lin and Chun Wang

Emerging Markets Finance and Trade, 2017, vol. 53, issue 10, 2215-2232

Abstract: This article analyzes the impacts of foreign direct investment (FDI) and short-term capital flows, otherwise known as hot money, on stock and house prices in China. Empirical results, estimated using the local projections approach, reveal that a positive hot money net inflow shock significantly increases stock and house prices and the impacts persist for up to 1–2 months, while a positive FDI net inflow shock contributes significantly to lagged house price appreciation but has no effect on stock prices. This study also identifies negative pass-through effects of FDI net inflows on hot money net inflows and positive pass-through effects of stock prices on house prices.

Date: 2017
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DOI: 10.1080/1540496X.2016.1180283

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