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Long-run stock price-house price relation: evidence from an ESTR model

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  • David G McMillan

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    (University of Stirling)

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    Abstract

    The direction of any long-run relationship between stock prices and house prices provides useful information for policy makers and practitioners regarding the presence of wealth and credit effects. Using quarterly data from the UK and US this paper reports evidence of non-linear dynamics in the adjustment to equilibrium. Specifically, the equilibrium-deviation must become large before stock prices revert. However, there is no evidence that house price adjust to any disequilbrium. This supports a credit effect on stock prices.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I2-P168.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 2 ()
    Pages: 1737-1746

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    Handle: RePEc:ebl:ecbull:eb-11-00582

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    Related research

    Keywords: House Prices; Stock Prices; ESTR Model; Credit Effect;

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    1. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970-2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages S96-S103, 08.
    2. Jan Kakes & Jan Willem Van Den End, 2004. "Do stock prices affect house prices? Evidence for the Netherlands," Applied Economics Letters, Taylor & Francis Journals, vol. 11(12), pages 741-744.
    3. Stuart Sayer, 2009. "Issues In Finance: Credit, Crises And Policies - An Overview," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 795-797, December.
    4. Massimo Guidolin & Stuart Hyde & David McMillan & Sadayuki Ono, 2009. "Non-linear predictability in stock and bond returns: when and where is it exploitable?," Working Papers 2008-010, Federal Reserve Bank of St. Louis.
    5. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2006. "Testing For Cointegration In Nonlinear Smooth Transition Error Correction Models," Econometric Theory, Cambridge University Press, vol. 22(02), pages 279-303, April.
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    Cited by:
    1. Tsangyao Chang & Xiao-lin Li & Stephen M. Miller & Mehmet Balcilar & Rangan Gupta, 2013. "The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains," Working Papers 201365, University of Pretoria, Department of Economics.

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