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An Empirical Note on Testing the Cointegration Relationship Between the Real Estate and Stock Markets in Taiwan

  • Tsangyao Chang

    ()

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

  • Yu-Chen Wei

    ()

    (Department of Management of Science, National Chiao Tung University, Hsin-Chu, Taiwan)

  • Yang-Cheng Lu

    ()

    (Department of Finance, Ming Chuan University, Taipei, Taiwan)

This note studies the long-run relationship between real estate and stock markets in the Taiwan context over the 1986Q3 to 2006Q4 period, using standard cointegration test of Johansen and Juselius (1990) and that of Engle-Granger (1987) as well as the fractional cointegration test of Geweke and Porter-Hudak (1983). The results from both types of cointegration tests strongly indicate that these two markets are not cointegrated with each other. With respect to risk diversification, it is obvious that investors and financial institutions should have included both assets in the same portfolio during that period.

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Volume (Year): 3 (2007)
Issue (Month): 45 ()
Pages: 1-11

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Handle: RePEc:ebl:ecbull:eb-07c30070
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  1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  2. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  3. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  4. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
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  6. 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, vol. 20(1), pages 25-54.
  7. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
  8. 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, vol. 20(3), pages 457-485.
  9. Mike Miles & Rebel Cole & David Guilkey, 1990. "A Different Look at Commercial Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 403-430.
  10. 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, vol. 18(4), pages 377-402.
  11. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 103-12, January.
  12. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  13. 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, vol. 3(3), pages 261-82, September.
  14. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  15. Abul Masih & Rumi Masih, 1997. "A comparative analysis of the propagation of stock market fluctuations in alternative models of dynamic causal linkages," Applied Financial Economics, Taylor & Francis Journals, vol. 7(1), pages 59-74.
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