On price co-movement and volatility spillover effects in China’s housing markets

Abstract

The soaring property prices in many Chinese cities have recently attracted increasing attention. This study uses the data on housing price indices from January 2005 to December 2014 in 10 large Chinese cities to analyze volatility spillover effects and to identify the determinants of price co-movement across the China’s regional housing markets. This research proposes a novel dynamic spatial panel data model that accounts for multivariate asymmetrical generalized autoregressive conditional heteroskedasticity components in disturbances to address these issues empirically. Results reveal that housing prices in cities are significantly influenced by population, income, mortgage rates, policy factors, and the national macroeconomic situation. The analysis further indicates that the housing returns of regions in China that are in close geographic and economic proximities exhibit strong co-movement and volatility spillovers. Evidence of significantly positive leverage effects in regional housing markets is also determined. This study’s findings have significant implications for academic researchers, financial experts, and policy makers.