Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains

Contents:

Author Info

  • Tsangyao Chang

    ()
    (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Xiao-lin Li

    ()
    (Department of Finance, School of Economics and Management, Wuhan University, Wuhan, China)

  • Stephen M. Miller

    ()
    (Department of Economics, University of Nevada, Las Vegas, Las Vegas, Nevada, 89154-6005 USA)

  • Mehmet Balcilar

    ()
    (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

Abstract

This study applies wavelet analysis to examine the relationship between the U.S. real estate and stock markets over the period 1890-2012. Wavelet analysis allows the simultaneous examination of co-movement and causality between the two markets in both the time and frequency domains. Our findings provide robust evidence that co-movement and causality vary across frequencies and evolve with time. Examining market co-movement in the time domain, the two markets exhibit positive co-movement over recent past decades, exception for 1998-2002 when a high negative co-movement emerged. In the frequency domain, the two markets correlate with each other mainly at low frequencies (longer term), except in the second half of the 1900s as well as in 1998-2002, when the two markets correlate at high frequencies (shorter term). In addition, we find that the causal effects between the markets in the frequency domain occur generally at low frequencies (longer term). In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two markets. These findings provide a more complete picture of the relationship between the U.S. real estate and stock markets over time and frequency, offering important implications for policymakers and practitioners.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://web.up.ac.za/sitefiles/file/40/677/WP_2013_65.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201365.

as in new window
Length: 34 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:pre:wpaper:201365

Contact details of provider:
Postal: PRETORIA, 0002
Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://web.up.ac.za/default.asp?ipkCategoryID=677
More information through EDIRC

Related research

Keywords: Stock market; real estate market; wavelet analysis; frequency domain; time domain;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  2. Roueff, François & von Sachs, Rainer, 2011. "Locally stationary long memory estimation," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 121(4), pages 813-844, April.
  3. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1015, Cowles Foundation for Research in Economics, Yale University.
  4. F.C. Neil Myer & James R. Webb, 1993. "Return Properties of Equity REITs, Common Stocks, and Commercial Real Estate: A Comparison," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 8(1), pages 87-106.
  5. Pat Wilson & John Okunev & Guy Ta, 1994. "Are Real Estate and Securities Markets Integrated? Some Australian Evidence," Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney 42, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  6. Liu, Crocker H, et al, 1990. "The Integration of the Real Estate Market and the Stock Market: Some Preliminary Evidence," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 3(3), pages 261-82, September.
  7. Rua, António & Nunes, Luís C., 2009. "International comovement of stock market returns: A wavelet analysis," Journal of Empirical Finance, Elsevier, Elsevier, vol. 16(4), pages 632-639, September.
  8. Chen, Nan-Kuang, 2001. "Asset price fluctuations in Taiwan: evidence from stock and real estate prices 1973 to 1992," Journal of Asian Economics, Elsevier, Elsevier, vol. 12(2), pages 215-232.
  9. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 943, Cowles Foundation for Research in Economics, Yale University.
  10. Karl E. Case & John M. Quigley & Robert J. Shiller, 2001. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1335, Cowles Foundation for Research in Economics, Yale University.
  11. Joseph McCarthy & Alexei G. Orlov, 2012. "Time-frequency analysis of crude oil and S&P500 futures contracts," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(12), pages 1893-1908, December.
  12. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics, Boston College Department of Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  13. Michael Graham & Jussi Nikkinen, 2011. "Co-movement of the Finnish and international stock markets: a wavelet analysis," The European Journal of Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(5-6), pages 409-425.
  14. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  15. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
  16. John Okunev & Patrick J. Wilson, 1997. "Using Nonlinear Tests to Examine Integration Between Real Estate and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 25(3), pages 487-503.
  17. Tiwari, Aviral Kumar & Mutascu, Mihai & Andries, Alin Marius, 2013. "Decomposing time-frequency relationship between producer price and consumer price indices in Romania through wavelet analysis," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 151-159.
  18. Luís Francisco Aguiar-Conraria & Maria Joana Soares & Nuno Azevedo, 2007. "Using Wavelets to decompose time-frequency economic relations," NIPE Working Papers, NIPE - Universidade do Minho 17/2007, NIPE - Universidade do Minho.
  19. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  20. Eichholtz, Piet M A & Hartzell, David J, 1996. "Property Shares, Appraisals and the Stock Market: An International Perspective," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 12(2), pages 163-78, March.
  21. 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.
  22. Brent W. Ambrose & Esther Ancel & Mark D. Griffiths, 1992. "The Fractal Structure of Real Estate Investment Trust Returns: The Search for Evidence of Market Segmentation and Nonlinear Dependency," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 20(1), pages 25-54.
  23. 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, Institute for Economic Forecasting, vol. 0(1), pages 41-53, March.
  24. David Geltner, 1990. "Return Risk and Cash Flow Risk with Long-term Riskless Leases in Commercial Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 18(4), pages 377-402.
  25. I-Chun Tsai & Cheng-Feng Lee & Ming-Chu Chiang, 2012. "The Asymmetric Wealth Effect in the US Housing and Stock Markets: Evidence from the Threshold Cointegration Model," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 45(4), pages 1005-1020, November.
  26. Luís Aguiar-Conraria & Maria Soares, 2011. "Oil and the macroeconomy: using wavelets to analyze old issues," Empirical Economics, Springer, Springer, vol. 40(3), pages 645-655, May.
  27. Kim Liow & Haishan Yang, 2005. "Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 31(3), pages 283-300, November.
  28. Patrick J. Wilson & John Okunev, 1999. "Long-Term Dependencies and Long Run non-Periodic Co-Cycles: Real Estate and Stock Markets," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 18(2), pages 257-278.
  29. Kim Hiang Liow, 2006. "Dynamic relationship between stock and property markets," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(5), pages 371-376.
  30. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
  31. Pin-te Lin & Franz Fuerst, 2014. "The integration of direct real estate and stock markets in Asia," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 46(12), pages 1323-1334, April.
  32. Kim Hiang Liow, 2012. "Co‐movements and Correlations Across Asian Securitized Real Estate and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 40(1), pages 97-129, 03.
  33. Panayotis Kapopoulos & Fotios Siokis, 2005. "Stock and real estate prices in Greece: wealth versus 'credit-price' effect," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(2), pages 125-128.
  34. John D. Benjamin & Peter Chinloy & G. Donald Jud, 2004. "Why do Households Concentrate Their Wealth in Housing?," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 26(4), pages 329-344.
  35. Jorion, Philippe & Schwartz, Eduardo, 1986. " Integration vs. Segmentation in the Canadian Stock Market," Journal of Finance, American Finance Association, American Finance Association, vol. 41(3), pages 603-14, July.
  36. Su, Chi-Wei, 2011. "Non-linear causality between the stock and real estate markets of Western European countries: Evidence from rank tests," Economic Modelling, Elsevier, Elsevier, vol. 28(3), pages 845-851, May.
  37. Joseph Gyourko & Donald B. Keim, 1992. "What Does the Stock Market Tell Us About Real Estate Returns?," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 20(3), pages 457-485.
  38. Jian Zhou, 2010. "Comovement of international real estate securities returns: a wavelet analysis," Journal of Property Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 27(4), pages 357-373, August.
  39. Daniel C. Quan & Sheridan Titman, 1999. "Do Real Estate Prices and Stock Prices Move Together? An International Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 27(2), pages 183-207.
  40. Okunev, John & Wilson, Patrick & Zurbruegg, Ralf, 2000. "The Causal Relationship between Real Estate and Stock Markets," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 21(3), pages 251-61, November.
  41. Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 45-59, January.
  42. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta, 2011. "Long- and Short-Run Relationships between House and Stock Prices in South Africa: A Nonparametric Approach," Working Papers, University of Pretoria, Department of Economics 201136, University of Pretoria, Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201365. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rangan Gupta).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.