Empirical Study On Relationships Among Hot Money, Housing And Stock Prices

There is no doubt that enormous "hot money" enters into China in recent years due to appreciation of RMB as well as interest rate gap between China and the United States. Meanwhile, skyrocketing housing and stock prices raise concerns of many experts and scholars on speculation of hot money in property and stock markets. Further, they analyze and bring up three explanations. First, hot money flowing into china speculates in real estate and stock market and boosts housing and stock prices directly. Second, hot money speculates property stocks, leading to the rising prices of property stocks. As a result, land agents can raise more funds to bid for land, and land price is raised. High land price leads to high housing price. In the meantime, high property stock price results in high stock prices. Third, hot money is also likely to go into land market and boosts land price. Housing and stock prices go up in a row due to the rising price of land.Based on the issues narrated above, author searches for and looks up many literatures by Chinese and foreign scholars to analyze the rationalities of three explanations. Meanwhile, author collects quarterly data around key factors such as, hot money, land price, housing price and stock price, and control factors like interest rate, disposable income of urban residents, housing completion, rate of return, M1, and GDP from 1998 to 2009, and uses software SPASS16.0 and EIVEWS5.0 to conduct statistical and empirical analyses. The conclusions of this dissertation are as follows:1. This dissertation shows that the speculation of hot money in land market obviously pulls up land price, and rising land price further leads to growth of stock price. But, it doesn't suggest that high housing price has something to do with high land price. Therefore, the viewpoint that hot money speculates in land market, causing growth of land price, and high land price triggers high stock price is supported in this paper. But, it doesn't support the point of view that is high land price contributes to high housing price. 2. This dissertation shows that the speculation of hot money in stock market obviously stimulates property stock price, and high property stock price further leads to rising stock and property prices. So, the viewpoint that hot money speculates in stock market, causing growth of property stock price, and high property stock price triggers high stock and property prices is supported in this paper.3. This dissertation shows that the speculation of hot money in stock market obviously stimulates property stock price, high property stock price also triggers growth of land price. High land price further causes growth of stock price. But high housing price has nothing to do with high land price. Therefore, this paper supports the viewpoint that is land price is boosted by high property stock price because of the bid by land agents using funds from stock market for land. But the viewpoint that high land price contributes to high housing price is not supported in this paper. However, conclusion in this paper indicates that there is a noticeably positive relationship between property stock price and housing price. According to this condition, this paper comes up with a reasonable explanation that is inflow of hot money into stock market remarkably triggers growth of property stock price, and land agents are able to raise funds through stock market. But they merely put a small amount of capitals into land market to bid for land, and use more funds to speculate in real estate.4. This dissertation shows that personal income, M1 and GDP have no significant influences on stock price. There is an impact between stock price and return, but this impact is less important than that of land price and property stock price, and there is also a negative impact between property price and return. Furthermore, personal income, housing completion and M1 and GDP are not main factors causing the change of property price.