Relationship Between the Shanghai and Hong Kong Property Stock Markets

Abstract

This paper examines whether the Shanghai and Hong Kong property stock markets are closely related in the period 1993-2003. As two economically promising cities in Asia, Hong Kong and Shanghai are held tightly together, by social, cultural and business ties. Therefore, it is important for international real estate investors, who want to enter China markets, to understand the relationships between the two markets in order to develop the right investment strategy. In this research, we analyse risk-return performance and the dynamic relationships between these two markets. Furthermore, we employ cointegration with structural break, errorcorrection model (ECM) and Generalised Autoregressive Conditional Heteroscedasticity (GARCH) models to the property stock data of the two markets. The empirical results suggest strong evidence of long-run and short-run relationships between the two markets.