Research On The Interaction Between Real Estate Market And Stock Market In China

After the reform of China’s real estate market in 1998, the real estate market and stock market developed very rapidly. They attracted a huge amount of capital, then house and stock have been the main investment choices for investor in China. After more than ten years develop-ment, the real estate market has been the principal industry in China. These two industries had injected something new for China’s economy, but their prices in our country are very irrational. Over the past decade, the price of house kept so high that deviated its real value. With the rapid advances in real estate, the stock market performed ups and downs and its price fluctuated too large. These two markets have been the most serious places of gathering risk in China. Currently, China is during a key period of the economic structure and the industrial structure adjustment and transformation. So it has a great significance both in academic and reality to reveal these two markets’ inner link. It’s important for investors to optimize the investment choices and for gover-nment to formulate the macro adjusting policies.This article reviews the development course of China’s real estate market and stock market and expounds mechanism of the two markets’interaction from these four perspectives (Portfolio theory, wealth effect, the credit function and macroeconomic factors). Then based on the mode of VAR, the paper is to make empirical study on the interaction between real estate and stock market of China via cointegration test, Granger causality test and impulse response analysis in three phases. This article’s conclusions are as follows. Firstly, form 1999 to 2005, the stock mar-ket and housing market appears weak negative correlation and the housing market is in the dominance. Secondly, from 2006 to 2009, the stock market and housing market presents a significant positive correlation and the dominant market was stock market. Finally, the relations-hip of the stock market and housing market is more complicated and the empirical test results is not remarkable from the year of 2010 to 2013. In the last part of the empirical chapter, it explains in detail about the causes of these different conclusions of the three phases. The last part of the article puts forward some suggestions for our government to coordinate the development of China’s real estate market and the stock market.