Dynamic Relation between Real Estate and Stock Markets in China

This paper works on the dynamic relation between the real estate market and the stock market in China, taking structural mutation into account. The empirical study is carried out by using Chow test, co-integration analysis, VAR model, and Granger causality test on the monthly data from 1999 to 2012. It turns out that with consideration of structure mutation occurred in 2006, China's real estate market and stock market are co-integrated with a positive correlation. Specifically, before the market structural mutation, the real estate market has a bidirectional Granger causality relation with the stock market. While after that, the stock price is found to Granger-cause the real estate price.