A Non-Linear Model of Causality Between the Stock and Real Estate Markets of European Countries
AbstractUsing 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.
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Bibliographic InfoArticle provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.
Volume (Year): (2011)
Issue (Month): 1 (March)
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causality; threshold model; threshold error-correction model (TECM); wealth effect; credit price effect;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull 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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- 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,"
2013-34, University of Connecticut, Department of Economics.
- 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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