Time-varying causality between stock and housing markets in China

- This paper investigates the relationship between the stock and housing markets from the perspective of China's first-, second- and third-tier cities, using the rolling-window bootstrap Granger causality test.
- The results indicate that the relations between stock and housing prices change across time and city tiers.
- For the effect from stock prices to housing prices, the causality is significant during bull market periods and the financial crises. Compared with second- and third-tier cities, the positive effect is much stronger in first-tier cities during the bull market.
- From housing prices to stock prices, the causality mainly appears during the global financial crisis, and the negative effect gradually diminishes from first-tier cities to third-tier cities.
- Both the global financial crisis and European sovereign debt crisis weaken the relationship between stock prices and housing prices.

Based on the rolling-window bootstrap Granger causality test, this paper investigates the relationship between stock and housing markets from the perspective of China's first-, second- and third-tier cities. The result indicates that the relations between stock and housing prices change across time and city tiers. The causality mainly exists in bull market periods and financial crises. During a bull market, the effect of stock prices on housing prices is positive in cities of all tiers, and the strongest effect is found in first-tier cities; during a financial crisis, housing prices have a negative effect on stock prices, and the effect diminishes gradually from first-tier cities to third-tier cities. Therefore, economic policy makers could take these differences into account to improve policy efficiency.