On the Dynamic Relationship between the Housing Market, Stock Market, and Macroeconomic Variables in Hong Kong

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Simon M. S. So
Red Z. W. Huang


The relationship between the housing market, stock market, and macroeconomic variables has long been a topic of concern to both academics and practitioners. This paper examines the short-run dynamics and long-run relationships between the residential property price index and the stock market index and four selected macroeconomic variables in Hong Kong. The Johansen (1991) cointegration approach and the Vector Error Correction Model (VECM) approach are used to examine the monthly time series during the sample period from 2004 to 2019. Our results show that there is a cointegration relationship between the residential property price index and the stock market index and selected macroeconomic variables. There is evidence that the Hang Seng index, money supply (M3), total loans, and unemployment rate are significantly associated with the residential property price index, while the consumer price index has no significant impact on the residential property price index in the short-run dynamics. Also, only the Hang Seng index and two macroeconomic variables have a long-run cointegration relationship with the housing market. This is the first attempt to shed light on both short-run and long-run relationships between two capital markets and macroeconomic variables in the context of Hong Kong. Our findings provide important implications for relevant government departments to stabilise the housing market and help practitioners form effective investment strategies.

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