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Dynamic Co-movements between Economic Policy Uncertainty and Housing Market Returns

Author

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  • Nikolaos Antonakakis
  • Rangan Gupta
  • Christophe André

Abstract

The financial crisis that followed the meltdown of the U.S. subprime mortgage market and the subsequent Great Recession were characterized by exceptionally large falls in house prices, as well as unprecedented levels of economic uncertainty. Against this background, we examine dynamic correlations between housing market returns and the economic policy uncertainty (EPU) index developed by Baker, Bloom, and Davis (2012), controlling for economic and financial fundamentals. We find negative correlations throughout the 1987–2014 period. More importantly, correlations are time-varying and tend to increase sharply in times of high economic uncertainty, notably around U.S. recessions. This implies that tail risks, or the probability of unusually large losses for investors in real estate and related securities following spikes in uncertainty, are significant.

Suggested Citation

  • Nikolaos Antonakakis & Rangan Gupta & Christophe André, 2015. "Dynamic Co-movements between Economic Policy Uncertainty and Housing Market Returns," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 21(1), pages 53-60, January.
    • Handle: RePEc:taf:repmxx:v:21:y:2015:i:1:p:53-60
    DOI: 10.1080/10835547.2015.12089971
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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