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Long- and Short-Run Relationships between House and Stock Prices in South Africa: A Nonparametric Approach

Author

Listed:
  • Goodness C. Aye

    () (Department of Agricultural Economics, University of Agriculture, Makurdi, Nigeria)

  • Mehmet Balcilar

    () (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

Abstract

This paper provides empirical evidence on the long- and short-run relationships between real house and stock prices of South Africa. Standard linear tests may not detect the existence of long- and short-run relationships between time series especially in the presence of structural shifts or regime changes, which, in turn, may cause nonlinearities in the observed series. Thus, in this study, both linear and nonparametric cointegration and Granger Causality tests were conducted utilizing a monthly data set over 1966:01 and 2011:06. Results from the linear cointegration test showed no long-run relationship between house and stock prices. At the same time, the linear Granger causality test produced no evidence of causality running in any or both directions either. In contrast, the nonparametric cointegration test showed the existence of a long-run one-to-one relationship between the two series, with the nonparametric Granger causality test, in addition, indicating a bi-directional causality.

Suggested Citation

  • Goodness C. Aye & Mehmet Balcilar & Rangan Gupta, 2011. "Long- and Short-Run Relationships between House and Stock Prices in South Africa: A Nonparametric Approach," Working Papers 201136, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201136
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    References listed on IDEAS

    as
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    Citations

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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. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2014. "A time-varying approach to analysing fiscal policy and asset prices in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 6(1), pages 46-63, April.
    3. Ding, Haoyuan & Chong, Terence Tai-leung & Park, Sung Y., 2014. "Nonlinear dependence between stock and real estate markets in China," Economics Letters, Elsevier, vol. 124(3), pages 526-529.
    4. Alexander Zimper, 2014. "The minimal confidence levels of Basel capital regulation," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(2), pages 129-143, April.
    5. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working Papers 1211, University of Nevada, Las Vegas , Department of Economics.
    6. Luis A. Gil-Alana & Goodness C. Aye & Rangan Gupta, 2012. "Testing for Persistence with Breaks and Outliers in South African House Prices," Working Papers 201233, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    House prices; stock prices; causality; nonlinearity; South Africa;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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