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Overreaction to policy changes in the housing market: Evidence from Shanghai

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  • Zhou, Zhengyi

Abstract

With the data of housing transaction records of Shanghai during 2004–2015, this paper comprehensively analyzes the housing market in this metropolis, and pays special attention to the market dynamics related to the frequent policy changes. We focus on the secondary market, and build repeat sales indexes. Then the AR(1)–GARCH(1,1) model is applied to estimate the weight of housing consumption incentives relative to investment incentives. It turns out that the overall market features strong consumption incentives, especially in the suburb area. Moreover, the market tends to overreact to policy changes. Compared with the suburb area, downtown features more investment incentives, lower returns and volatility, and less overreaction to policy changes. We infer that long-term investors overreact less than consumers. Finally, the purchase restriction policy and the issue of non-local buyers are discussed.

Suggested Citation

  • Zhou, Zhengyi, 2016. "Overreaction to policy changes in the housing market: Evidence from Shanghai," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 26-41.
  • Handle: RePEc:eee:regeco:v:58:y:2016:i:c:p:26-41
    DOI: 10.1016/j.regsciurbeco.2016.02.004
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    Cited by:

    1. Chen, W.D., 2016. "Policy failure or success? Detecting market failure in China's housing market," Economic Modelling, Elsevier, vol. 56(C), pages 109-121.
    2. Carolin Fritzsche & Lars Vandrei, 2016. "The German Real Estate Transfer Tax: Evidence for Single-Family Home Transactions," ifo Working Paper Series 232, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. repec:eee:ememar:v:35:y:2018:i:c:p:91-110 is not listed on IDEAS

    More about this item

    Keywords

    Policy; Overreaction; Housing market; Shanghai; China;

    JEL classification:

    • P25 - Economic Systems - - Socialist Systems and Transition Economies - - - Urban, Rural, and Regional Economics
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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