A Research On Correlation Of Price Volatility In The Real Estate Market And The Stock Market

Since the reform and opening up, the real estate market and the stock market is growing rapidly. After the reform of China’s land-use system and housing system, prompting the real estate market has become a pillar industry of China’s national economic development. The real estate value of 6% of GDP, the proportion of tertiary industry accounted for 12.4%.At the same time, expanding the scale of China’s stock market trading varieties diversity has become one of China’s major capital markets. As of March 13,2015, Shanghai and Shenzhen stock market capitalization of 42.1081 trillion Yuan, the Shanghai Stock Exchange has 1018 listed companies, the totalshare capital of 2.7717 trillion shares; Shenzhen has 1641 listed companies, listed securities 2540. Affected by domestic and international macroeconomic, China’s real estate and stock market prices stock market volatility has its own uniqueness. In order to better understand of the real estate and stock markets and help the government macro-control, risk-averse investors. Therefore, the study of the real estate market and stock market price volatility correlation is an issue of China’s financial institutions. Based on this background, this paper ARCH model to real estate sales price index and the Shanghai Composite Index for the study, studied the correlation between fluctuations in price.There are a number of methods about measuring the real estate market and the stock market price fluctuations. For example, the linear Granger two-step method of co integration and error correction model to analyze the relationship. VAR model variables cause explanation. However, most mainstream analysis of volatility measure is ARCH model. It has proposed as well as expansion of Engle’s ARCH model family. ARCH model, which can allow the variance changes with time and the variance, depends on the previous size of the squared error. It can better describe the existence of financial time series "Fat Tail" and "volatility clustering" phenomenon.This paper is both theoretical and empirical methods to illustrate the relationship between the real estate market and the stock market. Firstly, it introduces from the theoretical analysis of the real estate market and the stock market. It concludes the concept of the real estate market and stock market, characteristics, development and current situation. Besides that, it introduces the theory:the wealth effect, the role of credit mechanism, portfolio theory and macroeconomic conduction. Secondly, this paper has introduction of ARCH model family. ARCH Models generated background, significance, related research at home and abroad. It explains the basic connotation of ARCH models. Again, the empirical aspects of the ARCH model for China’s real estate market and the stock market price volatility through the application of research, mainly in the Shanghai Composite Index and real-estate sales price index for the study. Statistical analyzes were characterized by the establishment of ARCH and GARCH models. It uses the linkage Granger causality and impulse response function to analyze the existence of two dynamic market volatility correlations. The following conclusions:Real Estate Price Fluctuation have existed ARCH effects and asymmetry, but do not have leverage. Stock price volatility also exist asymmetry and leverage effect, which means bad news, will lead to substantial fluctuations in stock prices. The Granger causality test and impulse response function of the relationship showed that:the real estate market and stock market volatility is negatively correlated from 2006 to 2014. In addition,2006 February to April 2008 stock market volatility caused by fluctuations in the real estate market more; May 2008 to December 2014 the real estate market volatility can lead to fluctuations in the stock market.