The impact of China's Loan Prime Rate reform on the real estate companies

Abstract

The real estate market is an essential part of China's economy, and it occupies a vital position in the national economy. In 2019, the People's Bank of China announced that the Loan Prime Rate (LPR) was calculated according to the new formation mechanism. The emergence of LPR has had an essential impact on the real estate industry. This paper obtained the real estate company's stock price, trade date, index from August 1, 2019, to November 1, 2019, from CSMAR. Through the event study method, using the market model and mean adjusted model to analyze the impact of LPR on real estate companies and the real estate market. We found that the LPR policy reform was a good signal for real estate companies. By comparing two different markets, Shanghai Stock Exchange’s response to the new policy is slightly shorter than that of the Shenzhen Stock Exchange, and market model and adjusted model also confirm this positive results. My paper's contribution to the literature fills in the gaps in the research on the impact of Loan Prime Rate reform on real estate companies by other scholars, and analyzed the A-share market of the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Results revealed that the Shanghai Stock Exchange’s response to the new policy is slightly shorter than that of the Shenzhen Stock Exchange.