Purpose -This paper aims to test the short-and long-run interrelationships between Hong Kong's residential property market and stock market, as well as market fundamentals and China-related factors, between 1990 and 2006. Design/methodology/approach -The authors observed changes in the relationship between property prices and stock indexes by using Granger causality test, variance decomposition and CUSUM test. In contrast to some other studies, they have, at the same time, identified the break point(s) and variation of relation. Findings -The findings reveal that the correlation between residential property price and stock index had become weaker over time, even though the trend of residential property price is similar to that of stock index during the sample period. Under such circumstances, it is more likely for investors to reap more benefits through portfolio diversifications.Research limitations/implications -The credit price effect from the property market to the stock market, as observed between 1990 and 1994, has been replaced by a snowball effect within each of these two markets. In addition, stocks have become a hedge against inflation in the short-run, while both stocks and real estate investments are utilized as such in the long-run after 1995. Lastly, it appears that there are signs of interdependence between Hong Kong's stock market and the Chinese economy, whereas contagion might occur between China's economy and Hong Kong's property market. Originality/value -The paper proffers some insights with regard to both real estate and stocks as investment options, and how closer integration between two regions (or nations) shape the interactions between various markets between them.

Hong Kong and Shenzhen, while being interrelated in many aspects, have encountered different types of demand shocks throughout the past decade. This is likely due to disparities in market conditions and degrees of government regulations. In the light of such differences in property price trends, this research first investigates the relationships between housing prices and market fundamentals for both cities; and then it explores whether a housing price bubble existed for them in 2006. The results indicate that housing prices seem to have interacted abnormally with market fundamentals in recent years, especially for Shenzhen. In addition, while Shenzhen’s housing prices are mainly explained by previous housing prices and personal income, most economic indicators explain Hong Kong’s housing prices well. With regard to price bubbles, a puny bubble which amounts to as much as 4.5% of the housing price was formed in Shenzhen in 2006. In the meantime, the housing price bubble for Hong Kong had been diminished. Though currently not at dangerous levels, housing price bubbles should be taken with caution especially in today’s China, characterized by overinvestment and rapid policy changes.Price, Granger causality, generalized impulse response, property market, variance decomposition,

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Fluctuations in housing prices not only affect the financial well-being of corporations and households, but also influence the stability of economies. One of the results derived from such fluctuations is known as price bubbles. We aim to investigate whether such housing price bubbles did exist in two different residential markets of Hong Kong. The results indicate that there are bubbles in the Hong Kong housing markets before 2003, and later within the luxury market by 2008. As to what the government could do to curb speculative activities with regard to housing, the introduction of a capital gains tax on short-term transactions of flats as well as a higher housing supply are regarded as effective means.

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