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Linkages between property asset returns and interest rates: evidence for the UK

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Author Info

  • Chris Brooks
  • Sotiris Tsolacos

Abstract

This paper considers the effect of short- and long-term interest rates, and interest rate spreads upon real estate index returns in the UK. Using Johansen's vector autoregressive framework, it is found that the real estate index cointegrates with the term spread, but not with the short or long rates themselves. Granger causality tests indicate that movements in short term interest rates and the spread cause movements in the returns series. However, decomposition of the forecast error variances from VAR models indicate that changes in these variables can only explain a small proportion of the overall variability of the returns, and that the effect has fully worked through after two months. The results suggest that these financial variables could potentially be used as leading indicators for real estate markets, with corresponding implications for return predictability.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840122812
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 33 (2001)
Issue (Month): 6 ()
Pages: 711-719

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Handle: RePEc:taf:applec:v:33:y:2001:i:6:p:711-719

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Cited by:
  1. Jorge Belaire-Franch & Kwaku Opong, 2013. "A Time Series Analysis of U.K. Construction and Real Estate Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 46(3), pages 516-542, April.
  2. Tracey West & Andrew C. Worthington, 2003. "Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns: A comparative analysis using GARCH-M," School of Economics and Finance Discussion Papers and Working Papers Series 160, School of Economics and Finance, Queensland University of Technology.

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