Research On The Impact Of Housing Risk Exposure On The Cross-sectional Return Of Chinese A-share Stocks

According to traditional asset pricing theory,stocks with higher risk exposure should earn positive risk premium,i.e.,higher expected future return.The real estate market plays an indispensable role in the development of China’s economy and its capital market,it is of great significance to study the relationship between housing risk exposure and crosssectional return of Chinese A-share stocks.Using the multidimensional data of Chinese A-share stock market from 2003 to2020,this thesis investigates the impact of housing risk exposure on the cross-sectional return of A-share stocks through Fama-macbeth regression,univariate and bivariate sorting method.The rolling-window estimated housing beta and several indicators of real estate related investment are chosen as the measurement of housing risk exposure.The market,size and value factors are used as the benchmark factor model for the A-share stocks’ cross-sectional return.In addition,this thesis also tests the channel of this effect by applying panel regression and sorting method.The results show that:(1)different from the traditional risk-return trade-off,stocks with higher housing risk exposure earn significantly lower expected return and three factor alpha,i.e.,the housing risk is negatively priced in Chinese A-share stock market.(2)Quantitatively,for every unit of housing beta increase,the expected return of that stock in the next month will decrease by 0.1%; The arbitrage portfolio constructed by real estate related investment obtains a monthly excess return of 0.5% after being adjusted by the three factor model.(3)The channels of negative pricing under different housing risk exposure measures are different.The negative pricing under the measurement of housing beta can be attributed to the safe asset channel,i.e.,stocks with high housing beta can meet the investors’ demand of safe asset.While the negative pricing under the measurement of real estate related investment can be attributed to the consumption risk channel and overreaction channel.The consumption risk channel indicates that stocks with high real estate related investments can hedge real estate risk for consumers and smooth non-durable goods consumption under varying economic conditions.The overreaction channel points out that companies with high real estate related investment indicators have better fundamental performance in the future,and investors overreact to the return predictability of these indicators.Based on the above research results,this thesis suggests that:(1)A-share investors should pay attention to the impact of housing market risk on stock returns;(2)The government can eliminate the negative pricing of housing risks and improve the effectiveness of the A-share market by breaking the implicit guarantee in the real estate market,ensuring housing supply and controlling the real estate investment of industrial enterprises.