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Housing and Stock Market Returns: An Application of GARCH Enhanced VECM

Listed author(s):
  • Emmanuel Anoruo
  • Habtu Braha

This paper examines the relationship between housing and stock market returns for the United States using the cointegration analysis and the GARCH enhanced VECM. The results suggest that the two series are cointegrated. The results from the GARCH enhanced VECM indicate the presence of spillover effect from the stock market to the housing market but not vice versa. Taken together, the results provide evidence in support of the notion that the two markets are integrated rather than segmented. The findings of cointegration and spillover effect between the two series suggest that investors and portfolio managers cannot achieve risk reduction associated with diversification by jointly holding assets in real estate and stock markets.

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Article provided by IUP Publications in its journal The IUP Journal of Financial Economics.

Volume (Year): VI (2008)
Issue (Month): 2 (June)
Pages: 30-40

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Handle: RePEc:icf:icfjfe:v:06:y:2008:i:2:p:30-40
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  1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
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  7. 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.
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  11. Joseph Gyourko & Donald B. Keim, "undated". "What Does the Stock Market Tell Us About Real Estate Returns? (Revision of 18-91) (Reprint 030)," Rodney L. White Center for Financial Research Working Papers 11-92, Wharton School Rodney L. White Center for Financial Research.
  12. 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.
  13. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  14. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
  15. 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.
  16. 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.
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