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Does Wealth or Credit Effect Exist in China?

  • Chih-Wei SU

    (Faculty of Finance and Banking, Shanxi University of Finance and Economics, Taiyuan, Shanxi, China.)

  • Hsu-Ling CHANG

    (Department of Accounting and Information, Ling Tung University, Taichung, Taiwan.)

  • Chun JIANG


    (Department of Finance, Wuhan University.)

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    Using the non-parametric rank tests proposed by Breitung (2001), we set out in this study to determine whether any non-linear long-run equilibrium relationship exists between the stock and real estate markets of China. We go on to adopt the threshold error-correction model (TECM) to determine whether a similar relationship is discernible, possibly non-linear functions of the log-price of these two markets. Our results indicate the existence of a long-run non-linear relationship between the Shenzhen composite index and the real estate price index. In the short run, the Granger causality test favors the ‘wealth effect’ hypothesis; conversely, in the long run, the existence of the ‘credit-price’ effect is discernible above a certain threshold value, whilst the ‘wealth effect’ is apparent below this threshold value, which implies a bi-directional feedback causal relationship. Our empirical results demonstrate that in the long run, the price transmissions between these two markets are non-linear and asymmetric.

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    Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

    Volume (Year): (2013)
    Issue (Month): 3 (October)
    Pages: 104-114

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    Handle: RePEc:rjr:romjef:v::y:2013:i:3:p:104-114
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