The Interaction Between The Stock Price And The House Price Of China's First-tier Cities

The interaction relationship between stock market and real estate market has always been the key point in the academic area,which plays an important role in the economy development.On the one hand,the capital market plays an extremely important role in economy development.In China,after 2007,the market value of stock exceeded GDP for the first time,which was increasingly prominent to promote the economy reform and development and to improve the allocation of financial resources.On the other hand,the real estate is one of the key parts of the whole society wealth.The real estate prices decide the wealth of society and residents,influencing the development of industrialization and urbanization process.And the fluctuations effect the financial system and the stability and development of macro economy.Therefore,we will reap the benefits of giving a research to the dynamic relationship in order to level off national economy and improve residents welfare.This paper first reviews some stages of the development of China's stock market and real estate market,and then describes and analyzes the factors of house price,the characteristics of stock market and the factors that affect the fluctuation of house price and stock price as a basic introduction to the characteristics of China's two major markets.Starting from the theories related to the interactive relationship between share and real estate,this paper will elaborate on the interactive mechanism between share price and housing price based on Markowit's Modern Portfolio Theory.Both share price and housing price are influenced by various factors,such as macro-economic environment,national policy,anticipation,upstream industry and downstream industry.From the perspective of resident investor,there is still an interactive relationship between two major investment markets in China.In theory,the two markets are subject to the wealth effect,substitution effect and crowding-out effect mutually.This paper has also collected the SSE(Shanghai Stock Exchange)Composite Index,the secondhand housing price index in the first-tier cities and CPI-related monthly data from 2005 to 2015.Based on the data collected,the empirical research into the interactive relationship between housing price and share prince in the first-tier cities of China has been made.First of all,the stationarity test on the data has been conducted.ADF test has proved the data stationarity.In addition,the Time-varying Parameter-Vector Auto-regression model(TVP-VAR)has been built.As shown by the result of impulse response function,the rise in housingprice can have a short-term positive effect on the share price.In other words,the housing price can boost the share price in the short term.When the share price is under a positive impact,it will also have a short-term positive effect on the housing price.According to the result of empirical analysis,the increasing price in either real estate market or share market will boost the price in the other market.It means that the wealth effect will be finally reflected under the influence of various factors the share market and real estate market.Moreover,the transfer mechanism of wealth effect will become quite obvious under the influence of the two markets.The model is implemented by modifying the Matlab code of the TVP-VAR model published by Nakajima.From the results of the impulse response We can learn that the rise in house prices does not necessarily give a positive response to the stock price from by using the data of 2005 to 2015.And when the stock price receive a positive impact,house prices will produce short-term positive response.According to empirical analysis,we can find that the stock market price increases brought about by the wealth effect is more significant,to promote the flow of funds to the landlord to increase house prices,the wealth effect of housing prices is not significant,no significant impact on the stock price.