On Regional Differences in the Relationship among Stocks, Capital Siphons and Housing Prices

Xiong Yan; Wei Zhihua; Li Chao

doi:doi:10.16538/j.cnki.jfe.2018.07.008

Summary

The current research on housing prices mainly concentrates on the cause of fluctuations from the view of the aggregate economy. However, the economic growth rates are relatively stable across time and even across regions, thus making it difficult to reconcile the tremendous yet persistent rising in housing prices. Though the concurring volatile financial factors can partly explain the overall growth of housing prices because of its similar rising trend, the factors taken into account are restricted within the macro perspectives, for example, by investigating the changes of a stock index（such as the Shanghai Composite Index）. The differences across regions of housing prices remain by and large unexplained. In fact, the literature of studying the relationship between financial development and the regional economic gap has been growing, but investigating from the micro perspectives still remains limited.　　For this reason, this paper attempts to find out the reason why the listed companies yield different effects on housing prices in different regions: capital siphons. The siphon effect originates from the physical term " siphon phenomenon”, which refers to the one-way flow of water caused by different gravitational and potential forces. In this paper, we propose that the capital siphon results in the flow of capital from less developed to relatively wealthier regions. Studying the siphon effect after IPO is of great practical significance. First, previous literature pays little attention to capital siphons after IPO. Most of the related studies are qualitative analyses, or merely explore the relationship between stocks and GDP index without micro foundations. Second, capital siphons indeed have important effects on regional differences.　　This micro level analysis can be decomposed into two questions: First, how do listed companies siphon funds to reserve money for the local real estate market and do capital siphons affect the housing price? Second, when the siphoned capital enters into the real estate market will affect the growth structure of the market value and housing prices? This study shows that financing from the primary market and insiders sell from the secondary market tend to "siphon" the national capital and increase the local currency, and then push up housing prices. Equivalently speaking, the area which is financing more or selling more will siphon capital from other areas. The siphon effect from insiders sell is different from that of financing: the former stimulates the accumulation of wealth, that is, the demand of rich strata drives housing prices mainly, while the latter has little impact on wealth accumulation. The price fluctuation in the secondary market determines the growth rhythm of housing prices, and spiral growth relationship is found between the market value of stocks and housing prices at the regional level. The substitution effect of stock markets is dominant in the bull market, in which the growth of the market value is negatively correlated with that of housing prices, while the wealth effect is dominant in the bear market, in which the relationship between the market value and housing prices is positive. In addition, the conclusion remained unchanged when we controlled some potential paths, which includes the population siphon path, the favored economic boost policy path and the first-tier cities siphon path.　　With the effect that siphoned capital exacerbates regional differences of housing prices is significant, the controversial Opinions for Poverty Alleviation enacted by China Securities Regulatory Commission（CSRC）in 2016 becomes reasonable and acceptable. In the future, the central and western regions, which are relatively backward in capital market development, should be offered certain favorable policies to encourage the capital to remain in the original area, in the hope that regional differences in housing prices can be mitigated.　　This study contributes to the literature in the following aspects: First, it is the leading study to verify the capital siphon effect and to explain the financial causes and paths of regional differences in housing prices from the micro foundations. Second, it studies the influence of listed company on the regional economy from the perspectives of capital and housing prices. Third, it also clarifies the growth structure of stock markets and housing prices. Finally, this study provides a theoretical reference for regional economic coordination policies.