The connectedness between Hong Kong and China real estate markets: spillover effect and information transmission

Frequently migration between Hong Kong (HK) and China can cause the real estate price standards of HK's and China's first-tier cities to resemble one another. This study adopts the real estate prices of HK and four major cities in China, namely Beijing, Shanghai, Shenzhen, and Guangzhou, from January 2001 to April 2019. The results reveal that for both long- and short-term returns, the HK real estate market is influenced by the Shanghai real estate market. The HK real estate market and the Shenzhen real estate market exhibit the most connectedness. This may be because of their geographic closeness; people are more likely to migrate between these two cities. The real estate market in Beijing exhibits the greatest informativeness. In the four cities, only the informativeness of Guangzhou City substantially lags behind that of HK. This study also discovers that in the relationship between those regional real estate markets, exchange rate and stock market returns are key factors. The connection between the housing markets of Beijing and Hong Kong is attributable to the foreign exchange market, whereas the connection between the housing markets of Hong Kong and other first-tier cities is attributable to the stock market. The change in exchange rate influences the volatility of Beijing's real estate market. After this volatility is transmitted to HK, it influences the correlation between HK and Shanghai real estate markets as well as between HK and Shenzhen real estate markets.