Does a Financial Crisis Change Relationships? The Case of a Housing Market

There is a concern that a financial crisis could lead to a “structural change” in the asset markets and their relationship with the macroeconomy. Studying this issue is not straightforward. Corporations may change their management, the focus of their business, or even merge with other firms after a financial crisis, making the comparison of equity prices across time periods difficult. In contrast, housing units are typically indivisible, and display relatively less variations over time; hence housing research can contribute to the studies of financial crises.This project will utilize different statistical tools to explore if, and how, a financial crisis changes the interactions within a housing market. The results from this project may be important for the refinement of existing theories. Practitioners may find this project relevant as it suggests different investment strategies before and after a crisis. Bankers would find the results informative to their borrowing and loan strategies, especially given that most of the bank loans in Hong Kong are property-related. Policy makers may also be interested as this project may suggest some “warning signs” for another potential crisis.