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

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Author Info

  • 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)

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    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.

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    File URL: http://www.ipe.ro/rjef/rjef1_11/rjef1_2011p41-53.pdf
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    Bibliographic Info

    Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

    Volume (Year): (2011)
    Issue (Month): 1 (March)
    Pages: 41-53

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    Handle: RePEc:rjr:romjef:v::y:2011:i:1:p:41-53

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    Related research

    Keywords: causality; threshold model; threshold error-correction model (TECM); wealth effect; credit price effect;

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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.

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