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Will Housing Prices Plague China’s Stock Market under Currency Appreciation?----A Study on the Interaction between Exchange Rates, Housing Prices and Stock Index in China

Fan, Cheng LU (2012) NEKP02 20121
Department of Economics
Abstract (Swedish)
This paper is concentrated on analyzing the relationship between RMB exchange rate, real estate and stock markets in China. In particular, the study aims to investigate how these three markets are correlated and to what extend RMB appreciation will influence China`s housing and stock markets. Based on the empirical study, I find that the relations between RMB exchange rate, Chinese real estate and stock markets are more significant when Chinese capital market becomes more open and market oriented. Change of RMB exchange rate has a strong impact on stock prices in the both long run and short run, which in line with the flow oriented model. Particularly, the appreciation of RMB promotes the asset price due to oversea hot money inflows and... (More)
This paper is concentrated on analyzing the relationship between RMB exchange rate, real estate and stock markets in China. In particular, the study aims to investigate how these three markets are correlated and to what extend RMB appreciation will influence China`s housing and stock markets. Based on the empirical study, I find that the relations between RMB exchange rate, Chinese real estate and stock markets are more significant when Chinese capital market becomes more open and market oriented. Change of RMB exchange rate has a strong impact on stock prices in the both long run and short run, which in line with the flow oriented model. Particularly, the appreciation of RMB promotes the asset price due to oversea hot money inflows and easy liquidity of the banking system. Also the cointegration test indicates that the long term positive relation between housing prices and stock prices exists on the monthly basis. Thus with the trend of RMB appreciation, in the future the assets price in both markets are very likely to go up together, which would develop the asset price bubble in Chinese markets. The paper further analyzes the impacts of other different factors on the three markets based on the VAR model. Finally, the paper ends with some policy suggestions and advices for the further studies in this field. (Less)
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author
Fan, Cheng LU
supervisor
organization
course
NEKP02 20121
year
type
H2 - Master's Degree (Two Years)
subject
keywords
RMB appreciation, Stock prices, Housing prices, Cointegration, VAR
language
English
id
3095406
date added to LUP
2012-09-26 10:50:25
date last changed
2012-09-26 10:50:25
@misc{3095406,
  abstract     = {This paper is concentrated on analyzing the relationship between RMB exchange rate, real estate and stock markets in China. In particular, the study aims to investigate how these three markets are correlated and to what extend RMB appreciation will influence China`s housing and stock markets. Based on the empirical study, I find that the relations between RMB exchange rate, Chinese real estate and stock markets are more significant when Chinese capital market becomes more open and market oriented. Change of RMB exchange rate has a strong impact on stock prices in the both long run and short run, which in line with the flow oriented model. Particularly, the appreciation of RMB promotes the asset price due to oversea hot money inflows and easy liquidity of the banking system. Also the cointegration test indicates that the long term positive relation between housing prices and stock prices exists on the monthly basis. Thus with the trend of RMB appreciation, in the future the assets price in both markets are very likely to go up together, which would develop the asset price bubble in Chinese markets. The paper further analyzes the impacts of other different factors on the three markets based on the VAR model. Finally, the paper ends with some policy suggestions and advices for the further studies in this field.},
  author       = {Fan, Cheng},
  keyword      = {RMB appreciation,Stock prices,Housing prices,Cointegration,VAR},
  language     = {eng},
  note         = {Student Paper},
  title        = {Will Housing Prices Plague China’s Stock Market under Currency Appreciation?----A Study on the Interaction between Exchange Rates, Housing Prices and Stock Index in China},
  year         = {2012},
}