The spillover effect of real estate boom on stock market efficiency: evidence from China

Ge Yang, Ximing Yin, Zeyu Sun, Peng Bi and Qingqing Ma

Applied Economics, 2025, vol. 57, issue 24, 3164-3179

Abstract: We examine how the increase in real estate prices affects stock market efficiency. Using a sample of Chinese listed firms from 2010 to 2019, we find that high local real estate prices significantly exacerbate stock mispricing. Our findings remain robust after dealing with endogeneity concerns using an instrumental variable approach, an alternative sample choice, and alternative variable measurement. The positive effect of housing prices on stock mispricing is weaker for cross-listed firms and more pronounced for firms with more positive media coverage. Further analysis shows that the booming real estate market accelerates c orporate financial assets investment and inspires optimistic investor sentiment. Our results shed light on the negative spillover effect of the overheated real estate sector from the perspective of capital market efficiency.

Date: 2025
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DOI: 10.1080/00036846.2024.2336884

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