A Study On Correlation Between China’s Real Estate Market And Stock Market

Correlation analysis between the financial market is a hot topic in financial researchfield, a lot of financial problems, such as portfolio selection, asset pricing, riskmeasurement, involves correlation analysis. With the further development of globaleconomy and improvement of the financial market, real estate and stock has become thetwo most main investment vehicles in investment market. Studying the relationshipbetween the real estate market and stock market has very important guiding significanceto optimize the configuration of investors portfolio,formulate the macro-control policy ofgovernment and develop the national economy healthy. Therefore, this article study thecorrelation between China’s real estate market and stock market from two areas,thetheoretical analysis and the empirical research.This paper first uses economic theories to analyze the correlation between the realestate market and the stock market, and then using the methods of correlation analysisin traditional financial econometrics to empirical study the relationship between the realestate market and the stock market in China. In order to avoid the limits of linearcorrelation coefficient and traditional econometric analysis method, this paper alsointroduced copulas to study the relevance and tail dependence between the two markets,and a full range of revealing the relationship between the two markets, thus acomprehensive range of revealing the relationship between the two markets. Finallyaccording to the result of theoretical analysis and empirical test,to interpret the reasonsfor the correlation between Chinese real estate market and stock market, and put forwardspecific policy recommendations to effective control the real estate market and the stockmarket. Results of stationary test and cointegration test indicate that the real estate marketand stock market in China exist long-term synergic relationship, the results of Grangercausality test show that these two market exist unidirectional Granger causality, furthermore, the stock market dominant in the interrelation,impulse response functionanalysis reveal the presence of positive correlation between the two markets，in addition,the results of copula show that the two markets also exist symmetry tail dependence,indicating that positive and negative extremes have the same impact on the correlationbetween the two markets, and subprime mortgage crisis had affect the correlationbetween China’s real estate market and stock market.These results has very importantsignificance in guiding investors to allocate a safe and sensible portfolio and thegovernment to formulate correct macroeconomic regulation policies.