The co-movement and causality between housing and stock markets in the time and frequency domains considering inflation
China Finance Review International
ISSN: 2044-1398
Article publication date: 12 December 2017
Issue publication date: 14 February 2018
Abstract
Purpose
The purpose of this paper is to examine the causal relationship between Chinese housing and stock markets. The authors discuss the three transmission mechanisms between the two markets: wealth effect, modern portfolio theory and credit-price effect. Moreover, the authors focus on the effects of inflation on the relationship between the two markets.
Design/methodology/approach
This paper uses wavelet analysis to test the housing and stock markets relationship both in the frequency domain and time domain.
Findings
The empirical results indicate that housing prices have a positive effect on stock prices, and these have the same effect on housing prices. Moreover, this positive effect means that stock prices have a wealth effect on housing prices and these have a credit-price effect on stock prices.
Research limitations/implications
These results provide information to financial institutions and individual investors in China to assist them in constructing investment portfolios within these two asset markets.
Originality/value
The authors first use wavelet analysis to analyze Chinese housing and stock markets and to provide information both on the frequency domain and time domain. Moreover, the authors take the inflation factor as a control variable in the causal relationship between the housing and stock markets.
Keywords
Acknowledgements
This research is supported by the National Natural Science Foundation of China (Grant Nos 71773076, 71673186 and 71473165). The authors want to thank the editor and the reviewers for their constructive comments and suggestions on previous versions of the manuscript. The usual disclaimer applies.
Citation
Fan, J., Li, X., Shi, Q. and Su, C.-W. (2018), "The co-movement and causality between housing and stock markets in the time and frequency domains considering inflation", China Finance Review International, Vol. 8 No. 1, pp. 92-108. https://doi.org/10.1108/CFRI-06-2017-0061
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited