On the Imbalance Between the Real Estate Market and the Stock Markets in China

This article explores the imbalance between China's real estate market, which is booming, and the stock market, which has plunged over four years. Our empirical analysis shows that the two markets are systematically negatively related due to fund flows. The plummeting stock indexes are partly caused by the surge in the property market. In the meantime, the stock composite index is found to be significant in explaining housing-price movements, which are also affected by the inflation rate and hot money inflows. Policy measures redirecting the influx of funds from the housing market to the stock markets will help structural adjustment in stock markets, which is one of the nation's key tasks.