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A Non-Linear Model of Causality Between the Stock and Real Estate Markets of European Countries

Author

Listed:
  • Su, Chi Wei

    (School of Economics, University of Jinan, China. Department of International Business, Tamkang University, Taiwan.)

  • Chang, Hsu Ling

    (Department of Accounting and Information, Ling Tung University, Taiwan, Department of Finance, Xiamen University, China)

  • Zhu, Meng Nan

    (Department of Finance, Xiamen University, China)

Abstract

Using the threshold auto-regressive (TAR) model, we set out in this study to determine whether any long-run equilibrium relationship exists between the stock and real estate markets of the European countries, with our empirical results revealing that such a long-term relationship does indeed exist under a specific threshold value. We go on to adopt the threshold error-correction model (TECM) to determine whether a similar relationship is discernible between two specific variables and any non-linear forms. The findings clearly point to the existence of long-run unidirectional and bidirectional causality between the real estate market and the stock market in regions both above and below the threshold level. Finally, we find the existence of both wealth and credit price effects in the real estate markets and stock markets of European countries, again both above and below the threshold value, which thereby offers a better interpretation of the meaning of the macroeconomic factors.

Suggested Citation

  • Su, Chi Wei & Chang, Hsu Ling & Zhu, Meng Nan, 2011. "A Non-Linear Model of Causality Between the Stock and Real Estate Markets of European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 41-53, March.
    • Handle: RePEc:rjr:romjef:v::y:2011:i:1:p:41-53
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    Citations

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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 2013-34, University of Connecticut, Department of Economics.
    2. Tsang-Yao CHANG & Hao FANG & Yen-Hsien LEE, 2015. "Nonlinear A Djustment To The Long-Run Equilibrium Between The Reit And The Stock Markets In Japan And Singapore," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 27-38, September.
    3. Cheng-Wen Lee & Wei-Jui Chen, 2022. "Nonlinear Short-Run Adjustments between REITs and Stock Markets in the USA and Australia," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 12(1), pages 1-3.
    4. Korhan Gokmenoglu & Siamand Hesami, 2019. "Real estate prices and stock market in Germany: analysis based on hedonic price index," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 12(4), pages 687-707, April.
    5. David G McMillan, 2012. "Long-run stock price-house price relation: evidence from an ESTR model," Economics Bulletin, AccessEcon, vol. 32(2), pages 1737-1746.
    6. Li, Xiao-Lin & Chang, Tsangyao & Miller, Stephen M. & Balcilar, Mehmet & Gupta, Rangan, 2015. "The co-movement and causality between the U.S. housing and stock markets in the time and frequency domains," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 220-233.

    More about this item

    Keywords

    causality; threshold model; threshold error-correction model (TECM); wealth effect; credit price effect;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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