Fundamentals and the volatility of real estate prices in China: A sequential modelling strategy

Yongheng Deng (1) , Eric Girardin (2) , Roselyne Joyeux (3)

1 NUS - National University of Singapore
2 AMSE - Aix-Marseille Sciences Economiques
3 Macquarie University

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. However many observers and researchers argue that 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 the government housing prices which may suffer from the well-documented downward bias, this paper uses original high frequency unit price as well as transaction series for the residential resale housing markets of Beijing and Shanghai between January 2005 and December 2010 to test alternative hypotheses about housing prices volatility.

Keywords: MIDAS; Conditional variance; Bubbles; China; Housing prices

Domains: Economics and Finance; Quantitative Finance [q-fin]

Yongheng Deng, Eric Girardin, Roselyne Joyeux. Fundamentals and the volatility of real estate prices in China: A sequential modelling strategy. China Economic Review, 2018, 48, pp.205-222. ⟨10.1016/j.chieco.2016.10.011⟩. ⟨hal-01996210⟩