THE IMPACT OF COOLING MEASURES ON THE STOCK PERFORMANCE OF REAL ESTATE FIRMS IN CHINA

Abstract

This paper uses a creative approach to gauge impact of a major housing policy due to the great difficulties to study the impact of housing policies in China as a result of various issues in terms of geographical coverage and data availability. A typical event study can be carried out to determine how the government interventions can be absorbed and reflected in the stock market which could provide a new strategy by offering high quality and readily available data on publicly listed real estate firms. Furthermore, firm-level characteristics discussed in this paper provide additional insights for business executives to make better-informed decisions. The results shows that the policy under study indeed had negative impact on real estate business, which is reflected in additional negative CAR observed within the event window. Furthermore, three characteristics, local government ownership, exposure to second tier cities and increase in financial leverage, are sources of additional negative abnormal returns. These results and findings of this paper may serve as evidences of any bold theoretical assumptions about policymaking process in China. It is also possible to assume a wider scope of external shocks rather than being limited to political intervention.