Does Wealth or Credit Effect Exist in China?

Chih-Wei Su, Hsu-Ling Chang and Chun Jiang ()
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Chih-Wei Su: Faculty of Finance and Banking, Shanxi University of Finance and Economics, Taiyuan, Shanxi, China.
Hsu-Ling Chang: Department of Accounting and Information, Ling Tung University, Taichung, Taiwan.
Chun Jiang: Department of Finance, Wuhan University.

Journal for Economic Forecasting, 2013, issue 3, 104-114

Abstract: Using the non-parametric rank tests proposed by Breitung (2001), we set out in this study to determine whether any non-linear long-run equilibrium relationship exists between the stock and real estate markets of China. We go on to adopt the threshold error-correction model (TECM) to determine whether a similar relationship is discernible, possibly non-linear functions of the log-price of these two markets. Our results indicate the existence of a long-run non-linear relationship between the Shenzhen composite index and the real estate price index. In the short run, the Granger causality test favors 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 bi-directional feedback causal relationship. Our empirical results demonstrate that in the long run, the price transmissions between these two markets are non-linear and asymmetric.

Keywords: rank test; Granger causality test; wealth effect; credit-price effect (search for similar items in EconPapers)
JEL-codes: C22 E44 G11 (search for similar items in EconPapers)
Date: 2013
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