Research On The Dynamic Relationship Between Stock Market And Real Estate Market

As a major component part of the investment market in China， stock markets andreal estate have been grown strong gradually since we followed the policy of reform andopening. Historical facts have proved that financial crisis is likely to worsen due to themultiple relations between stock markets and real estate. A good understanding of thecorrelation effect between real estate and stock markets has a theoretical and realisticsignificance in sustainable development and financial stability. It could not only provideinvestment guidelines but also have reference value for national macro control and perfectmarket supervision.This paper explores the multiple relations between stock markets and real estatethrough the medium of foreign exchange markets， and analysis the interaction mechanismamong stock markets， real estate and foreign exchange markets. First， this articleexpounds a general theory of relations between stock markets and real estate， thenanalyzes the transmission mechanism and point out that foreign exchange markets， as amedium， have an effect on correlation effect between real estate and stock markets bytrade balance， international capital， money supply and psychology expectation. Theresearch conducted an empirical analysis using ADF unit root test， VAR model， impulseresponse analysis， Granger test and Engle-Granger cointegration test based on data fromThe Shanghai Composite Index， Real Estate Climate Index and the yuan-dollar exchangerate.The results of this research find that the variation trend of stock markets is basicallyconsistent with that of real estate in China. But the relationship between stock markets andreal estate varies to Changes in global economy and financial condition although twomarkets share a close relationship. Stock index will significantly boost the real estate sectorthrough the wealth effect， but not the opposite——real estate development may bringsome negative effects on stock markets. What’s more， the RMB appreciation andexpectations of appreciation could contribute to the prosperity of stock markets and realestate. And yet， a declining market suffers more due to a massive loss of short-termcapital flows from overseas. Last but not the least， while looked at the effects of policythrough two historical periods of different national policies， we discovered that currentconstitution and economic environments have an impact on multiple relations between stock markets and real estate， which partially explain the mixed results of preliminaryresearch from domestic scholars.