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Equilibrium Correlations of Asset Price and Return

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Author Info
Charles Leung ()

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Abstract

Two empirical questions concerning the equity and housing have been studied extensively: (1) Are the price and return serially correlated, and (2) What is the optimal weight of housing in the portfolio? The answer to the second question crucially depends on the cross-correlation of assets. This paper complements the literature by building a simple dynamic general equilibrium with fully rational agents, and obtain closed form solutions for the implied auto- and cross-correlations. The length of time horizon, as well as the persistence of economic shock matter. Implications and future research directions are then discussed. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11146-007-9009-y
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Publisher Info
Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 34 (2007)
Issue (Month): 2 (February)
Pages: 233-256
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jrefec:v:34:y:2007:i:2:p:233-256

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Web page: http://www.springerlink.com/link.asp?id=102945

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Related research
Keywords: Rational expectation; Price and return; Serial and cross correlation; Market efficiency; Predictability; E30; G10; R20;

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Ka Yui Leung & Kelvin Siu Kei Wong & Patrick Wai Yin Cheung, 2007. "On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence," International Real Estate Review, Asian Real Estate Society, vol. 10(2), pages 66-93. [Downloadable!]
  2. Charles Leung, 2007. "Equilibrium Correlations of Asset Price and Return," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 233-256, February. [Downloadable!] (restricted)
    Other versions:
  3. Nan-Kuang Chen & Charles Leung, 2008. "Asset Price Spillover, Collateral and Crises: with an Application to Property Market Policy," The Journal of Real Estate Finance and Economics, Springer, vol. 37(4), pages 351-385, November. [Downloadable!] (restricted)
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