| Since the commercialization of real estate in 1998, the real estate industry is becoming increasingly important in China’s national economy. The rapid development of China’s real estate market has always been the focus of our attention. At the same time, since the establishment of the China’s stock market especially after the Split Share Structure Reform, the stock market experienced several rounds alternate of bull market and bear market. Stocks as an essential part of investors’ portfolios, its fluctuation also deeply affects the emotions of the majority of investors. This thesis analyzed the monthly national average commodity building selling price and Monthly Shanghai (securities) composite index from September 1998 to December 2015 to explore the spillover effect between the real estate market and the stock market. The purpose of this paper was to offer recommendations for government and investors in the view of macroeconomic regulation and risk management.Firstly, this thesis applied the BEKK-GARCH model to test the volatility transmission effect between real estate market and stock market in China. In this situation, there was unidirectional spillover effect from stock market to real estate market, that is to say, the volatility in stock market would transfer to real estate market. Moreover, the real estate market and the stock market both were volatility clustering, the stock market had volatility persistence. In addition, the stock market and the real estate market had cross market volatility persistence effects. However, considering the influence might cause by economic events or policies, this paper further examined the structural breaks of real estate market and stock market in China. The study found out that there was no mean equation structural break point in both real estate market and stock market. By using modified ICSS algorithm test, the result showed that compared to real estate market, the fluctuations in stock market was more intense with four variance structural break points, while the real estate market had one variance structural break point. Therefore, this paper introduced the structural break points as dummy variables into the two variables BEKK-GARCH model, and constructed the volatility spillover model to test the effect of volatility transmission. Empirical study found that under the influence of structural break points, there was still unidirectional spillover effect from stock market to real estate market in China and the real estate market kept volatility clustering; However, after considering the structural break points, the persistence of stock volatility decreased, indicating that stock market had spurious volatility persistence; In addition, after considering the structural break points, the clustering of stock market volatility decreased, and the stock market of the real estate market the cross market volatility persistence effect between real estate market and stock market also significantly decreased.Learning from the above research, at the macro level, to effectively control the volatility in the stock market was the key to control the internal risk in the national economic system in China. Therefore, once China’s stock market experienced tremendous ups and downs, the government should take immediate measures to stabilize the stock market, such as increasing policy efforts to restrict stock index futures speculation, etc. In addition, this thesis recommended to accelerate the establishment of the stock market risk warning system. Once the fluctuation in a short time was more intense than the risk warning value, then an emergency plan should be launched to prevent large fluctuations in the economic and social instability. Effective monitoring the volatility of the stock market was conducive to the prevention of systemic risk transferring from the stock market to the real estate market, which might cause the second concussion of macro economy. On the other hand, the empirical results showed the volatility clustering of China’s real estate market, in this case, in order to avoid continuous fluctuation caused by large fluctuation in China, the regulation of the real estate market was very necessary. At the same time, the regulation of the real estate market should be incorporated into the overall macroeconomic regulation system. At the micro level, this thesis reminded investors to balance the risks and benefits, adjust the investment portfolio by predicting the volatility of real estate market with the volatility of the stock market, so as to avoid suffering heavy losses in market fluctuation. |
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