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Systemic risk and spatiotemporal dynamics of the US housing market

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Author Info

  • Hao Meng

    (ECUST)

  • Wen-Jie Xie

    (ECUST)

  • Zhi-Qiang Jiang

    (ECUST)

  • Boris Podobnik

    (BU and ZSEM)

  • Wei-Xing Zhou

    (ECUST)

  • H. Eugene Stanley
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    Abstract

    Housing markets play a crucial role in economies and the collapse of a real-estate bubble usually destabilizes the financial system and causes economic recessions. We investigate the systemic risk and spatiotemporal dynamics of the US housing market (1975-2011) at the state level based on the Random Matrix Theory (RMT). We identify rich economic information in the largest eigenvalues deviating from RMT predictions and unveil that the component signs of the eigenvectors contain either geographical information or the extent of differences in house price growth rates or both. Our results show that the US housing market experienced six different regimes, which is consistent with the evolution of state clusters identified by the box clustering algorithm and the consensus clustering algorithm on the partial correlation matrices. Our analysis uncovers that dramatic increases in the systemic risk are usually accompanied with regime shifts, which provides a means of early detection of housing bubbles.

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    File URL: http://arxiv.org/pdf/1306.2831
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1306.2831.

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    Date of creation: Jun 2013
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    Publication status: Published in Scientific Reports 4, 3655 (2014)
    Handle: RePEc:arx:papers:1306.2831

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    Web page: http://arxiv.org/

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    1. Billio, Monica & Getmansky, Mila & Lo, Andrew W. & Pelizzon, Loriana, 2012. "Econometric measures of connectedness and systemic risk in the finance and insurance sectors," Journal of Financial Economics, Elsevier, vol. 104(3), pages 535-559.
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    9. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
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    11. Sanders, Anthony, 2008. "The subprime crisis and its role in the financial crisis," Journal of Housing Economics, Elsevier, vol. 17(4), pages 254-261, December.
    12. Raj Kumar Pan & Sitabhra Sinha, 2007. "Collective behavior of stock price movements in an emerging market," Papers 0704.0773, arXiv.org, revised Nov 2007.
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