The Integration of Real Estate and Stock Markets in China with the Application of Quantile Regression

Abstract

This paper examines the integration and extreme co-movements between real estate and equity markets in China. We illustrate these ideas in simple empirical settings, implementing the relatively techniques from quantile regression. Our results show that real estate and stock in Shanghai are extremely integrated. Our contribution provides the ability to estimate the diversification effects to international investors that are attributed to the real estate market in China. This study has important implications for risk management and asset allocations during extremes. Furthermore, the finding is also important for international asset pricing since the exposure to the joint extreme risk and thus should be included in pricing international assets.