Causes for Return Volatility in Chinese Housing Markets Based on Dynamic Gordon Model

Abstract:

The vector autoregression model consisting of housing market return, rental growth, interest rate and per capita disposable income growth was established based on dynamic Gordon model. And the reasons for return volatility in the housing market were analyzed with the data of five major Chinese cities from the second quarter of 1999 to the second quarter of 2011. The results indicate that the news of rental growth contributes the most to return volatility in Chinese housing market, followed by the news of interest rate, and their correlation weakens the volatility in the market return; the news of interest rate has longer impacts on return volatility than the news of expected return and rental growth; the responses of housing market return to various news in these cities show differences in terms of intensity and speed.

Key words:housing market; return volatility; dynamic Gordon model; vector autoregression (VAR)