The interactions between Hong Kong’s housing market and global markets upon unprecedented monetary policy changes

Abstract

This paper explores whether the introduction of unconventional monetary policy measures re-shapes the interactions between Hong Kong’s housing market and global stock market and economic factors. It is found that, the interactions between Hong Kong’s housing prices and global stock markets attenuated during the conventional monetary policy period (CMPP), especially after the Asian Financial Crisis. The level of interactions with global factors reached the lowest during the transitional period between CMPP and the unconventional monetary policy period (UMPP). By contrast, the co-movements with global stock market factors had played a bigger role in explaining Hong Kong’s housing price variations during UMPP, especially at the time when the US, UK, EU, and Japan deployed QEs and/or negative interest rate policy. Nevertheless, such high level of integrations did not sustain as QE3 ended in the US. The findings yield important implications in view of recent central bank actions responding to the dim economic prospects due to the COVID-19 pandemic.

Keywords:

• Housing market
• stock markets
• financial crises
• monetary policy changes
• Hong Kong

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 According to the Hong Kong Monetary Authority (HKMA), the Base Rate is currently set at “either 0.5% above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month Hong Kong Interbank Offered Rates (HIBORs), whichever is higher.”

2 Nevertheless, some researchers have argued that contrasting results in the literature could also be the result of the choice of markets, the frequency of data (and the sample period), as well as the methodologies used (see Crowder & Wohar, 1998; Forbes & Rigobon, 2002).

3 Surprisingly, some of these studies have also reported that the Japanese stock market, by contrast, has much less impact on other Asian stock markets.

4 https://www.tid.gov.hk/english/trade_relations/mainland/trade.html

5 https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1∼3949d6f266.en.html. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm

6 https://www.federalreserve.gov/newsevents/pressreleases/monetary20211215a.htm