Anticipating Critical Transitions of Chinese Housing Markets

33 Pages Posted: 20 May 2017

See all articles by Zhang Qun

Zhang Qun

Guangdong University of Foreign Studies

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology

Hao Zhang

Guangdong University of Foreign Studies

Date Written: May 2017

Abstract

We introduce a novel quantitative methodology to detect real estate bubbles and forecast their critical end time, which we apply to the housing markets of China's major cities. Building on the Log-Periodic Power Law Singular (LPPLS) model of self-reinforcing feedback loops, we use the quantile regression calibration approach recently introduced by two of us to build confidence intervals and explore possible distinct scenarios. We propose to consolidate the quantile regressions into the arithmetic average of the quantile-based DS LPPLS Confidence indicator, which accounts for the robustness of the calibration with respect to bootstrapped residuals. We make three main contributions to the literature of real estate bubbles. First, we verify the validity of the arithmetic average of the quantile-based DS LPPLS Confidence indicator by studying the critical times of historical housing price bubbles in the U.S., Hong Kong, U.K. and Canada. Second, the LPPLS detection methods are applied to provide early warning signals of the housing markets in China's major cities. Third, we determine the possible turning points of the markets in BeiJing, ShangHai, ShenZhen, GuangZhou, TianJin and ChengDu and forecast the future evolution of China's housing market via our multi-scales and multi-quantiles analyses.

Keywords: real estate bubbles, forecasting, Log-Periodic Power Law Singularity, multi-scale analysis, quantile regression, DS LPPLS Confidence indicator

JEL Classification: C22, C51, C53, E31, E37, G01, G17, R30

Suggested Citation

Qun, Zhang and Sornette, Didier and Zhang, Hao, Anticipating Critical Transitions of Chinese Housing Markets (May 2017). Swiss Finance Institute Research Paper No. 17-18, Available at SSRN: https://ssrn.com/abstract=2969801 or http://dx.doi.org/10.2139/ssrn.2969801

Zhang Qun

Guangdong University of Foreign Studies ( email )

Collaborative Innovation Center for Silk Road
Guangzhou, Guangdong
China

Didier Sornette (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Southern University of Science and Technology

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

Tokyo Institute of Technology

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

Hao Zhang

Guangdong University of Foreign Studies ( email )

Collaborative Innovation Center for Silk Road
Guangzhou, Guangdong
China

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