| The marketization of China’s real estate industry in1998has brought about the rapid growth of China’s real estate market. The booming urbanization leads to high real estate investment scale, promotes economic development, and helps improve people’s livelihood as well. However, the speculation demand of housing spurs the rapid growth of China’s housing price and further draw the public attention about whether there is a bubble in China’s housing market, and if there do exist a bubble, how big is it.It’s necessary to detect the existence and scale of housing bubble, cause the bigger the bubble, the higher risk of financial crisis. This paper mainly focuses on the detection and forming mechanism of housing bubble, provides both theoretical and empirical evidence of China’s housing bubble from the perspectives of three kinds of main market participants respectively.In this paper, we attempt to shed light on the following aspects. First, defining the meaning of the construct "housing bubble". Second, we apply state-space model to analysis Beijing’s housing market, in order to detect the existence of the housing bubble and its longitudinal change. Finally, this paper further explores the forming mechanism of housing bubble by constructing theoretical model of buyers, sellers and financial institution using the DSSW model. The theoretical analysis is then confirmed by the empirical test of Beijing’s housing market using Granger casualty test and vector autoregressive error correct model.This paper is mainly organized into three parts.Firstly, define housing bubble. Housing bubble is the deviation of housing price to its basic market value caused by both rational and irrational issues. This paper estimates basic market value based on economic fundamentals and constructs the baseline housing price model. Then we estimate the quarterly housing bubble of Beijing from2002to2013by adding state-space model and Kalman filtering method into the baseline model. The empirical results show that the housing bubble in Beijing generated in2006and its scale is influenced by both real estate market and macro-economy.Secondly, the forming mechanism of housing bubble. We apply the DSSW model into the real estate market, and analyze the buyer, seller, and financial institution separately through rigorous mathematic derivation. The three model analyze the housing bubble in different perspectives and demonstrate that the expected noise of house buyers and sellers, as well as the credit support from financial institutions are the main cause of housing bubble.Thirdly, empirical evidence of the forming mechanism of housing bubble. This paper applies Granger casualty test and vector autoregressive error correct model to analyze the housing price of Beijing. The estimation results support the theoretical analysis and buyers expectation, sellers expectation, and financial support are all granger reason of the housing bubble. Besides, there exists long run co-integration relationship between housing bubble and the three parts of market participants. This paper further investigates the force of different market participants to the housing bubble using the impulse response function and ANOVA.The main contribution of this paper are as follows:(1) This paper shed light on the detection of housing bubble. The mathematical derivation of this paper is based on both literature and the background of China, so that the models may be more suitable for China’s real estate market.(2) This paper expand the bubble detection from stock market into the real estate market. The analysis is organized according to different market participants, and rigorous theoretical derivation is applied in this paper.(3) Different perspectives to detect forming mechanism of housing bubble in this paper supplement the single perspective in the previous literature. The empirical analysis of Beijing’s housing market further support the theoretical derivation.(4) The analysis of this paper help open the black box of the forming mechanism of housing bubble, which provide basis for future policy making.The future research prospects are as follows:(1) This paper only do empirical analysis of Beijing’s housing price data. The future research can expand to multi-city analysis and compare the regional difference.(2) The forming mechanism of housing bubble can take into account more market participants, for instance the government. Also the institution environment also worth detailed study.(3) How to choose proxy variable of expectation is the key issue in the detecting of housing bubble. The future research can attempt to find a more feasible proxy variable or use questionnaire to do primary data collection.(4) The collapse of housing bubble is also a matter of concern. Will China’s housing bubble burst? If it do so, when will it happen? The related research questions call for more deep study.
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