House price bubbles in China

In this paper, we apply the theory of rational expectation bubbles proposed by Blanchard and Watson (1983) to the Chinese housing market. The theory implies that negative returns on house prices are less likely to occur if the bubbles exist. Based on data from 35 cities in China, we find no evidence to support the existence of such bubbles in the Chinese housing market.

► We apply the theory of rational expectation bubbles to the Chinese housing market. ► We test the necessary condition of bubbles based on the data of 35 cities in China. ► We find no evidence to support the existence of bubbles in the housing market. ► Our result is robust to the model specification and the data.