Government Behavior And Asset Prices

Government intervention and market mechanism both contribute to economic development and stability.When the market fails,government intervention becomes particularly important.The stock market and the real estate market are critical components of the financial market and real economy,respectively.This dissertation studies the impact of government behavior on asset prices by investigating the Chinese stock market and the Shanghai housing market,with the typical features of our transitional economy in mind.The results not only have significant academic values,but also generate practical implications.Compared with the relevant studies in the literature,this dissertation focuses more on the typical Chinese fearues.By looking into the diversifed ownership structure in our economy and the important policy decisions such as the housing market interventions,we discover important phenomenons and reach valuable conclusions.In the study for the stock market,I use anti-corruption events related to high-level officials as signals for increased political uncertainty.Then I investigate how political uncertainty affects the stock market,and the role that government ownership plays in this whole mechanism.Now that government behavior is particularly relevant for the real estate industry,I specicially investigate the response of real estate stocks to increased political uncertainty.And based on our micro-level data of housing transaction records in Shanghai,I investigate whether the stocks' responses are justified by real outcomes in the housing market.More specifically,I construct a repeat sales housing price index for Shanghai,as well as a look-ahead-bias-free sentiment index for the Shanghai housing market.Then I test how policy changes interact with the market dynamics and market sentiment in the housing market.The dissertation is composed of the introduction and the main body.The introduction demonstrates the background,the roadmap,and the importance of this study.The main body consists of five sections,as summerized below.Section ? provides the literature review and theoretical foundations.More specifically,I summarize the literature about the financial-market impact of government behavior,and the housing-market impact of government interventions.Section ? studies the impact of political uncertainty on stock prices.To begin with,I illustrate the background of this research question,and demonstrate the logic of using anti-corruption events as signals for increased political uncertainty.Then I examine the market patterns on the event days and in the post-event periods,and specifically look into the real estate stocks.It is found that: 1)Political uncertainty hurts listed firms' value;2)Private firms suffer more than state-owned-enterprises(SOEs)from political uncertainty.These findings not only support several new theoretical models in the literature,but also highlight the importance of introducing government ownership into the models.Finally,I try to provide some discussion and intepretation for my empirical findings.Section ? studies the impact of policy changes on the Shanghai housing market.I illustrate the background of this research question,and document the history about the development and government interventions in the Shanghai housing market.Then using the repeat sales method,I calculate the housing price index for Shanghai.After that,I look into the market overreaction to policy changes.It is found that: 1)During our sample period(2006.12-2015.5),the housing price growth in Shanghai is about 242%;2)The housing market overreacts to the tightening policies,and the overreaction is mainly reflected on trading volume;3)Compared with the downtown market,the suburb market features lower returns and volatility;it also overreact less to policy changes,and has stronger investment incentives relative to consumption incentives.This finding is consistent with the argument that long-term investors help stablize asset prices.Finally,I provide a discussion about the hot topics in the housing market,such as non-local buyers,and the purchase restriction policy.Section ? looks into the impact of housing market sentiment on policy effectiveness.After demonstrating the background of this research question,I illustrate how I construct the housing market sentiment index.Then based on this index,it is further found that: 1)High sentiment has some explanatory power for the low housing market returns in the future;2)Loosening policies can increase sentiment,while tightening policies hardly decrease sentiment;3)When tightening policies meet with high sentiment,the housing price growth will quickly rebound after a temporary drop.The modified model of Burnside,Eichenbaum,and Rebelo(2016)can illustrate this phenomenon.Section ? is the conclusion part,which provides a summary of my findings,and discusses the policy implication as well as possible research extensions.The contribution and innovation of this dissertation lies in the aspects as follows:First,based on the diversifed onwership structure in our economy,I study how SOEs and private firms are affected in different ways by political uncertainty.Since the 2008 global financial crisis,political uncertainty has become a popular topic in the field of asset pricing.Unlike the case in the U.S.,it is important to distinguish SOEs from private firms when studying the Chinese economy.However,the existing models rarely contain such a distinction.According to my findings,private firms suffer more from political uncertainty than SOEs do.This knowledge indicates a possible theoretical extension,and also provides implications for policy makers.Second,I construct a repeat sales housing price index for Shanghai.For data availability reasons,most housing price index in China is based on the hedonic approach,the hybrid approah,or the matched-sample approach.These approaches do not control for the heterogeneous-quality problem as comprehensively as the repeat sales approach does.Now,because of my access to the transaction records in the Shanghai housing market,I manage to provide a repeat sales housing price index.It is worth noticing that many big cities in the western world have repeat sales housing price indexes,so the index that I make provides foundations for comparative studies in the future.Third,inspired by the widely dicussed "irrationality" problem in the housing market,I innovatively apply the construction approach of the stock market sentiment index to the housing market,and build a housing market sentiment index for Shanghai.This index can help households make decisions,and also help the government monitor the housing market.Fourth,I quantitively analyze the interaction among policy changes,housing market dynamics,and housing market sentiment.Since most western countries have much lower intervention frequency than China has,there are rarely studies about the market impact of housing market interventions in the western literature.In china,because of data availability reasons,the relevant studies are also limited.I try to fill this gap.My conclusions will provide meaningful implication for policy makers.