Impact of exchange rate regime reform on asset returns in China

Xiuping Hua, Laixiang Sun, Tianyi Wang

    Research output: Journal PublicationArticlepeer-review

    4 Citations (Scopus)

    Abstract

    Employing monthly data over the period 1999–2010, this paper examines the impact of China's exchange rate regime reform in July 2005 on three major asset markets: house, land, and stocks. We test whether the reform, which switches from a fixed exchange rate regime to a managed floating one, has brought forward structural changes to asset return dynamics. The results suggest that the exchange rate regime switch exerted the most significant impact on house and land returns at the national level, in terms of both returns and their volatilities. In contrast, its impact on China's stock market was moderate, with no structural change being detected in its returns and only weak structural change being found in the dynamics of its volatility. We also find that in comparison with other popular explanatory variables, broad money supply and inflation have the largest explanatory power on housing and land returns in China after the policy reform.

    Original languageEnglish
    Pages (from-to)147-171
    Number of pages25
    JournalEuropean Journal of Finance
    Volume21
    Issue number2
    DOIs
    Publication statusPublished - 26 Jan 2015

    Keywords

    • China
    • asset returns
    • broad money supply
    • exchange rate regime
    • structural break

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance (miscellaneous)

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