Author(s)

Zhao Li, Jiafan Wang

Corresponding Author

Zhao Li

ABSTRACT

In recent years, the Chinese government has been requesting that efforts be stepped up to prevent asset bubbles, mainly to prevent a real estate market bubble. This paper provides the definition of an asset price bubble as well as the relevant theories on asset price bubble measures in order to build a theoretical model of asset price bubbles and a supremum augmented Dickey-Fuller (Sup ADF or SADF) bubble test model. Based on the SADF model, the paper conducts a bubble test of the time series data on newly-built housing prices in 70 large or medium-sized Chinese cities (categorized in Tiers 1, 2, and 3) from January 2011 through October 2018. An estimation of the times of appearance and disappearance of the price bubble is included. The findings show that: a) Tier 1 cities had many instances of price bubbles; b) in general, the majority of Tier 2 and Tier 3 cities had fewer instances of price bubbles than Tier 1 cities; c) most Tier 2 cities’ price bubbles appeared under the influence of Tier 1 city bubbles; and, d) most Tier 2 and Tier 3 cities had price bubbles throughout 2018. Based on the empirical research findings, the paper proposes to a) strengthen housing price dynamic monitoring and bubble early warnings; b) implement a differential regulation for different urban housing markets; and c) institute a long-term mechanism for the development of the housing market as early as possible.

KEYWORDS

Housing market; Price bubble; China; SADF test