Real estate bubble in China: An empirical study based on VaR model

Abstract

Real estate market in China has developed rapidly these years and enjoys brilliant achievements, but at the same time certain problems such as high mortgage level and soaring housing price come out, arousing public concern of bubble in Chinese real estate market. In this paper, we intensively discussed statistical models including VaR models and heavy tail models to explain the phenomenon of high frequency of market bubble occurrence. We also use historical simulation VaR model, which is a widely used statistical model and has been proved successful in financial market bubble analysis, to calculate the Value at Risk for Chinese Housing Price Index January 2011. Based on analysis, certain suggestions such as the construction of real estate industry database, the creation of sound bubble risk monitoring and administration system are given, in order to prevent dangerous property bubble from happening again.