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Price Linkages between Stock, Bond and Housing Markets - Evidence from Finnish Data

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Author Info
Elias Oikarinen
Abstract

ABSTRACT : There are a number of reasons to assume that significant interdependences exist between the financial asset markets and the housing market. Identifying the linkages between stock, bond and housing markets may improve return forecasts in different asset markets. Interdependence and predictability of different asset prices is of importance concerning portfolio diversification and allocation, especially from long-term investors’ point of view. Furthermore, linkages between asset classes are likely to have significant policy implications. The purpose of this paper is to study the long- and short-term dynamic interdependences between stock, bond and housing markets using time series econometrics and utilizing a quarterly dataset from Finland over 1970-2005. In addition to short-term dynamics, there also appears to be long-run interrelations between the asset prices according to cointegration analysis. There is clearly a structural break in the long-run relationship between stock and housing prices in the early 1990s. Interaction between the markets seems to have diminished after the break. In line with the theory and previous research, it is found that stock appreciation Granger caused housing price changes prior to 1993. Since 1993, in turn, stock appreciation seems to have Granger caused housing only through a cointegrating long-run relation. Co-movement of bond price changes with stock and housing appreciation is found to be weak, although bond prices belong to a long-run relation including also stock and housing prices.

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1004.

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Length: 36 pages
Date of creation: 17 Feb 2006
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Handle: RePEc:rif:dpaper:1004

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Keywords: asset prices; housing; co-movement; cointegration;

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
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Cited by:
(explanations, 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.)

  1. Tuukka Saarimaa, 2008. "Owner-Occupied Housing and Demand for Risky Financial Assets: Some Finnish Evidence," Finnish Economic Papers, Finnish Economic Association, vol. 21(1), pages 22-38, Spring. [Downloadable!]
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