The relationship between Chinese real estate bubble index and stock market

Abstract

This study is designed to probe the interconnection between the real estate and stock markets, to ascertain the presence and nature of any correlation, to delve into the underpinnings of such a correlation, and to evaluate the extent to which the real estate market's dynamics can be predictive of stock market behaviors. Additionally, the investigation will scrutinize the cyclicality inherent between these markets, confirming the existence of periodic and concomitant fluctuations and dissecting the interplay and underlying mechanisms of these cyclical movements. Findings indicate that, over a span of 9 to 12 years, extremities and fluctuations within the Real Estate Bubble Index can potentially forecast movements in the CSI300 Real Estate Index within a 9 to 10-month frame and the CSI1000 Index within 22 to 24 months. Moreover, while there is an established cyclical connection between the real estate bubble index and the BSE50 and CSI300 indices, a robust linear correlation is absent. Subsequent inquiries should delve deeper into the precise character of this interrelation and the various factors that could impinge upon the correlation coefficient. Concurrently, the potential of real estate bubbles to presage trends in specific real estate-affiliated stock indices emerges as a pivotal insight, bearing significant implications for investors and market analysts formulating investment portfolios and risk management strategies.

Keywords: Real estate, stock market performance, China