Fundamentals and the Volatility of Real Estate Prices in China: A Sequential Modelling Strategy

HKIMR Working Paper No.22/2015

37 Pages Posted: 13 Nov 2015

See all articles by Yongheng Deng

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Eric Girardin

University Aix-Marseille 2 - GREQAM

Roselyne Joyeux

Macquarie University - Department of Economics; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

Date Written: November 11, 2015

Abstract

In a similar way to the stock market, the housing market in China has often been portrayed as highly speculative, giving rise to “bubble” concerns. Over the last decade, residential prices increased every year on average by double digits in Beijing or Shanghai (Deng, Gyourko and Wu, 2012). However many observers and researchers argue that the fundamentals of the housing sector, both sector-specific and macroeconomic, may have been the driving force behind housing price volatility. While existing empirical work exclusively relies on downward-biased official housing prices, this paper uses original high-frequency unit level residential price series for Beijing and Shanghai to test alternative hypotheses about the drivers of house price growth. We propose a sequential research strategy including the construction of hedonic prices, explosive unit root tests (Phillips, Shi and Yu, 2014), the filtering of microstructure noise (Bollerslev et al. 2015) and a Mixed Data Sampling (MIDAS) methodology (Ghysels et al, 2007; Engle et al., 2013) which enables us to document that fundamentals can indeed account for movements in housing price volatility, as well as transaction volume in first‐tier cities such as Beijing and Shanghai.

Suggested Citation

Deng, Yongheng and Girardin, Eric and Joyeux, Roselyne, Fundamentals and the Volatility of Real Estate Prices in China: A Sequential Modelling Strategy (November 11, 2015). HKIMR Working Paper No.22/2015. Available at SSRN: https://ssrn.com/abstract=2689387 or http://dx.doi.org/10.2139/ssrn.2689387

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Eric Girardin (Contact Author)

University Aix-Marseille 2 - GREQAM ( email )

Centre de la Vieille Charité
Marseille, 13 002
France

Roselyne Joyeux

Macquarie University - Department of Economics ( email )

Sydney NSW 2109
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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