Causality Tests and Their Applications to China’s Stock and Housing Markets

Abstract

The link between the stock market and the housing market is well known to be sensitive. At present, the possibility of a connection between them remains intriguing. Therefore, China works as a case study for the research inquiry into the causal relationship between the stock market and the housing market. Using the monthly data from January 2000 to January 2021 and employing the cross‐correlation function approach to perform empirical analysis, the results indicate that the bidirectional causal relationship between the stock market and the housing market has been recognized as one of the most interesting findings, which constitutes a significant departure from previous research. Moreover, the other interesting result is that, from the housing market to the stock market, a causality‐in‐mean and a causality‐in‐variance are discovered. Only a tiny number of previous studies have addressed this achievement in the context of China. Meanwhile, this article’s findings have both theoretical and practical implications for China’s proposition.