Ripple effect of the housing purchase restriction policy and the role of investors' attention

The housing purchase restriction policy (the HPR policy) implemented in China is regarded as one of the strictest. Different from the existing studies on the local impact of the HPR policy, this paper verifies the ripple effect of the HPR policy from adjacent cities. With a monthly panel data of 58 cities in China, this study finds that the HPR policy exerts a significant ripple effect. More adjacent cities implementing the HPR policy will drive up local housing prices, and the attention of investors plays a vital role in this process. By doing so, this paper adds some new insights for the studies on the HPR policy, the ripple effect of housing prices, and the housing market sentiment. Our results also provide some implications for the policy-making process in terms of regional cooperation or coordination.