S. Ba, C. Qin, and Y. Zhu (PRC)
structural breaks; non-linear Granger causality; interaction
This paper explores the relationship between China real estate and stock market after the reform of housing system of China. The results of this empirical analysis exhibit three specific outcomes. First, Shanghai Composite Index and House Prosperity Indices are both trend stationary series around breakpoints thus exogenous shock can only have temporary impact on them. Second, compared with stock market, real estate market is a better indicator of economic fundamentals. Third, linear Granger causality test on detrended series exhibit unidirectional relationship that run from stock market to real estate market and non-linear causality test exhibit comparatively weak unidirectional relationship that runs from real estate market to stock market with longer lags.
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