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Detecting bubbles in China’s regional housing markets

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  • Wei-Fong Pan

    (First Capital Securities Co., Ltd.)

Abstract

This study employs the supremum augmented Dicker–Fuller (SADF) and generalized supremum ADF (GSADF) tests to examine the Chinese housing market for the presence of bubbles from 2005 to 2016. We first employed a conventional right-tailed unit root test, and the results clearly suggest that housing prices showed no explosive behaviour in most cities. We further used SADF and GSADF, and the results suggest that most major cities in China experienced bubbles, with the longest bubble period from 2015 to the present, which is still ongoing. The SADF and GSADF results are robust after considering the effects of interest and mortgage rates. Moreover, the northern and southern regions experienced the largest number of bubbles, with over 1.1 bubbles for each city, while the western region experienced the fewest bubbles over the last decade. The western region had bubbles with the shortest durations, around 4 months, than other regions, where the average duration was at least 5 months. This study provides potentially valuable insights into the Chinese housing market and offers important policy implications.

Suggested Citation

  • Wei-Fong Pan, 2019. "Detecting bubbles in China’s regional housing markets," Empirical Economics, Springer, vol. 56(4), pages 1413-1432, April.
    • Handle: RePEc:spr:empeco:v:56:y:2019:i:4:d:10.1007_s00181-017-1394-3
    DOI: 10.1007/s00181-017-1394-3
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    2. Hu, Genhua & Fan, Gang-Zhi, 2022. "Empirical evidence of risk contagion across regional housing markets in China," Economic Modelling, Elsevier, vol. 115(C).

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    More about this item

    Keywords

    Real estate; Rational bubbles; Housing market; Recursive unit root;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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