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Long-run stock price-house price relation: evidence from an ESTR model

Author

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  • David G McMillan

    () (University of Stirling)

Abstract

The direction of any long-run relationship between stock prices and house prices provides useful information for policy makers and practitioners regarding the presence of wealth and credit effects. Using quarterly data from the UK and US this paper reports evidence of non-linear dynamics in the adjustment to equilibrium. Specifically, the equilibrium-deviation must become large before stock prices revert. However, there is no evidence that house price adjust to any disequilbrium. This supports a credit effect on stock prices.

Suggested Citation

  • 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.
  • Handle: RePEc:ebl:ecbull:eb-11-00582
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I2-P168.pdf
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    References listed on IDEAS

    as
    1. Elaine Worzala & Kerry D. Vandell, 1995. "International Direct Real Estate Investments as Alternative Portfolio Assets for Institutional Investors: An evaluation," ERES eres1995_185, European Real Estate Society (ERES).
    2. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2006. "Testing For Cointegration In Nonlinear Smooth Transition Error Correction Models," Econometric Theory, Cambridge University Press, vol. 22(02), pages 279-303, April.
    3. Jan Kakes & Jan Willem Van Den End, 2004. "Do stock prices affect house prices? Evidence for the Netherlands," Applied Economics Letters, Taylor & Francis Journals, vol. 11(12), pages 741-744.
    4. Guidolin, Massimo & Hyde, Stuart & McMillan, David & Ono, Sadayuki, 2009. "Non-linear predictability in stock and bond returns: When and where is it exploitable?," International Journal of Forecasting, Elsevier, pages 373-399.
    5. Stuart Sayer, 2009. "Issues In Finance: Credit, Crises And Policies - An Overview," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 795-797, December.
    6. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970-2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages 96-103, August.
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    Cited by:

    1. Tsangyao Chang & Xiao-lin Li & Stephen M. Miller & Mehmet Balcilar & Rangan Gupta, 2013. "The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains," Working papers 2013-34, University of Connecticut, Department of Economics.
    2. Li, Xiao-Lin & Chang, Tsangyao & Miller, Stephen M. & Balcilar, Mehmet & Gupta, Rangan, 2015. "The co-movement and causality between the U.S. housing and stock markets in the time and frequency domains," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 220-233.

    More about this item

    Keywords

    House Prices; Stock Prices; ESTR Model; Credit Effect;

    JEL classification:

    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets

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