Research Article
BibTex RIS Cite

TESTING FOR LONG-RUN RELATIONSHIPS BETWEEN EUROPEAN HOUSING AND STOCK MARKETS: EVIDENCE OF THE WEALTH, CREDIT-PRICE AND CAPITAL-SWITCHING REGIME EFFECTS

Year 2022, , 1 - 19, 26.03.2022
https://doi.org/10.46959/jeess.951413

Abstract

The purpose of this research is to study the asymmetric relationship between house prices and stock followed by the wealth effect/credit-price effect/capital-switching regime. Stock prices are more volatile in case of negative news, while real estate is rigid downwards. To depict this potential asymmetry, the TAR/M-TAR model is employed and the asymmetric ECM for causal inferences. For cases with no asymmetry are tested with the Johansen framework and VECM. Empirical results indicate asymmetric credit-price effect for Finland and symmetric cointegration for Ireland, Sweden, Switzerland. The VECM indicates that Sweden exhibits wealth effect and there is credit-price effect for Ireland. The European Union has implemented its policies that accounted for the unification of its member nations. It is the first to examine asymmetric linkages between the house and stock prices under the capital-switching behavior found in the European markets as well as their unification after the implementation of Maastricht Treaty.

Supporting Institution

University of Bath

Thanks

I would like to thank Dr. Bruce Morley for acting as my supervisor and sharing his immense knowledge and perseverance that was crucial to developing this research. Finally, I would like to thank Dr. Kei Tsutsui for his warmth and strong encouragement and the University of Bath for the variety of resources that has made this research prolific

References

  • Ando, A., & Modigliani, F. (1963). “The "Life Cycle" Hypothesis of Saving: Aggregate Implications and Tests”, American Economic Review, 53(1), 55-84.
  • Apergis, N., & Lambrinidis, L. (2007). “More evidence on the relationship between the stock and real estate market”, Journal of Social Science Research Network, 17, 24–50.
  • Bandt, O., Knetsch, T., Penalosa, J. & Zollino, F. (2010). “Housing Markets in Europe: A Macroeconomic Perspective”, Springer-Verlag Berlin Heidelberg.
  • Buiter, W. H. (2008). “Housing Wealth isn’t Wealth”, National Bureau of Economic Research, Working Paper 14204.
  • Calomiris, C., Longhofer, S. D., & Miles, W. (2009). “The (Mythical?) Housing Wealth Effect”, National Bureau of Economic Research, Working Paper 15075.
  • Case, K. C., & Shiller, R. J. (2003). “Is There a Bubble in the Housing Market ?”, Brookings Papers on Economic Activity, 2, 299-362.
  • Chen, N. K., (2001). “Asset price fluctuations in Taiwan: Evidence from stock and real estate prices 1973 to 1992”, Journal of Asian Economics, 215–232.
  • Chou, C., & Chen, S. (2011). “Integrated or segmented? a wavelet transform analysis on relationship between stock and real estate markets”, Economics Bulletin, 31(4), 3030-3040.
  • Enders, W., & Dibooglu, S. (2001). “Long-Run Purchasing Power Parity with Asymmetric Adjustment”, Southern Economic Association, 68(2), 433-445.
  • Enders, W., & Granger, C. W. J. (1998). “Unit-Root Tests and Asymmetric Adjustment With an Example Using the Term Structure of Interest Rates”, Journal of Business & Economic Statistics, 16(3), 304-311.
  • Enders, W., & Siklos, P. L. (2001). “Cointegration and Threshold Adjustment”, Journal of Business & Economic Statistics, 19(2), 166-176.
  • Engel, R. F., & Granger, C. W. J. (1987). “Co-Integration and Error Correction: Representation, Estimation, and Testing”, The Econometric Society, 55(2), 251-276.
  • Figlewski, S., & Wang, X. (2000). “Is the “Leverage effect” a leverage effect ?”, NYU Finance Working Paper Series FIN-00-037.
  • Gao, A., Lin, Z., & Na, C. F. (2009). “Housing market dynamics: Evidence from mean reversion and downward rigidity”, Journal of Housing Economics, 18, 256-266.
  • Grieco, J. M. (1995). “The Maastricht Treaty, Economics and Monetary Union and the Neo-Realist Research Programme”, Reviews of International Studies, 21(1), 21-40.
  • Johansen, S. (1991). “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models”, Econometrica, 59(6), 1551-1580.
  • Kapopoulos, P., & Siokis, F. (2005). “Stock and real estate prices in Greece: wealth versus ‘credit-price’ effect”, Applied Economics Letters, 12(2), 125-128.
  • Lee, M. T., Lee, C. L., Lee, M. L., & Liao, C. Y. (2017). “Price linkages between Australian housing and stock markets: Wealth effect, credit effect or capital switching ?” International Journal of Housing Markets and Analysis, 10(2), 305-323.
  • Lin, T. S., & Lin, Z. H. (2011). “Are stock and real estate markets integrated? An empirical study of six Asian economies”, Pacific-Basin Finance Journal, 19, 571-585.
  • Liu, Y. S., & Su, C. W. (2010). “The relationship between the real estate and stock markets of China: evidence from a nonlinear model”, Applied Financial Economics, 20(22), 1741-1749.
  • Maclennan, D., Muellbauer, J., & Stephens, M. (1998). “Asymmetries in Housing and Financial Market Institutions and EMU”, Oxford Review of Economic Policy, 14(3), 54-80.
  • Markowitz, H., (1952), “Portfolio selection”, The Journal of Finance, 7(1), 77–91.
  • Oikarinen, E. (2006). “Price linkages between stock, bond and housing markets: Evidence from Finnish data”, Working Paper, The Research Institute of Finnish Economy, Helsinki
  • Shin, Y., & Schmidt, P. (1992). “The KPSS stationarity test as a unit root test”, Economic Letters, 38, 387-392.
  • Sim, S. H., & Chang, B. K. (2006). “Stock and Real Estate Markets in Korea: Wealth or Credit-Price Effect”, Journal of Economic Research, 11, 99-122.
  • Sing, T. F., & Tan, Z. Y. (2013). “Time-varying correlations between stock and direct real estate returns”, Journal of Property Investment & Finance, 31(2), 179-195.
  • Su, C. W. (2011). “Non-linear causality between the stock and real estate markets of Western European countries: Evidence from rank tests”, Economic Modelling, 28, 845-851.
  • Su, C. W., Chang, H. L., & Jiang, C. (2013). “Does Wealth or Credit price effect exist in China?”, Romanian Journal of Economic Forecasting, 16(3), 104-114.
  • Takala, K., & Pere, P. (1991). “Testing the Cointegration of House and Stock Prices in Finland”, Finnish Economic Papers, 4(1), 33-51.
  • Tsai, I. C., Lee, C. F., & Chiang, M. C. (2012). “The Asymmetric Wealth Effect in the US Housing and Stock Markets: Evidence from the Threshold Cointegration Model”, Journal of Real Estate Finance and Economics, 45, 1005-1020.
  • Westermann, F. (2004). “Does the Euro affect the dynamic interactions of stock markets in Europe? Evidence from France, Germany and Italy”, The European Journal of Finance, 10, 139-148.
  • Wolski, R. (2020). “Co-Integration Test of Selected Indexes on the Share Market and Index of Housing Real Estate Prices”, Real Estate Management and Valuation, 28(1), 100-111.
Year 2022, , 1 - 19, 26.03.2022
https://doi.org/10.46959/jeess.951413

Abstract

References

  • Ando, A., & Modigliani, F. (1963). “The "Life Cycle" Hypothesis of Saving: Aggregate Implications and Tests”, American Economic Review, 53(1), 55-84.
  • Apergis, N., & Lambrinidis, L. (2007). “More evidence on the relationship between the stock and real estate market”, Journal of Social Science Research Network, 17, 24–50.
  • Bandt, O., Knetsch, T., Penalosa, J. & Zollino, F. (2010). “Housing Markets in Europe: A Macroeconomic Perspective”, Springer-Verlag Berlin Heidelberg.
  • Buiter, W. H. (2008). “Housing Wealth isn’t Wealth”, National Bureau of Economic Research, Working Paper 14204.
  • Calomiris, C., Longhofer, S. D., & Miles, W. (2009). “The (Mythical?) Housing Wealth Effect”, National Bureau of Economic Research, Working Paper 15075.
  • Case, K. C., & Shiller, R. J. (2003). “Is There a Bubble in the Housing Market ?”, Brookings Papers on Economic Activity, 2, 299-362.
  • Chen, N. K., (2001). “Asset price fluctuations in Taiwan: Evidence from stock and real estate prices 1973 to 1992”, Journal of Asian Economics, 215–232.
  • Chou, C., & Chen, S. (2011). “Integrated or segmented? a wavelet transform analysis on relationship between stock and real estate markets”, Economics Bulletin, 31(4), 3030-3040.
  • Enders, W., & Dibooglu, S. (2001). “Long-Run Purchasing Power Parity with Asymmetric Adjustment”, Southern Economic Association, 68(2), 433-445.
  • Enders, W., & Granger, C. W. J. (1998). “Unit-Root Tests and Asymmetric Adjustment With an Example Using the Term Structure of Interest Rates”, Journal of Business & Economic Statistics, 16(3), 304-311.
  • Enders, W., & Siklos, P. L. (2001). “Cointegration and Threshold Adjustment”, Journal of Business & Economic Statistics, 19(2), 166-176.
  • Engel, R. F., & Granger, C. W. J. (1987). “Co-Integration and Error Correction: Representation, Estimation, and Testing”, The Econometric Society, 55(2), 251-276.
  • Figlewski, S., & Wang, X. (2000). “Is the “Leverage effect” a leverage effect ?”, NYU Finance Working Paper Series FIN-00-037.
  • Gao, A., Lin, Z., & Na, C. F. (2009). “Housing market dynamics: Evidence from mean reversion and downward rigidity”, Journal of Housing Economics, 18, 256-266.
  • Grieco, J. M. (1995). “The Maastricht Treaty, Economics and Monetary Union and the Neo-Realist Research Programme”, Reviews of International Studies, 21(1), 21-40.
  • Johansen, S. (1991). “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models”, Econometrica, 59(6), 1551-1580.
  • Kapopoulos, P., & Siokis, F. (2005). “Stock and real estate prices in Greece: wealth versus ‘credit-price’ effect”, Applied Economics Letters, 12(2), 125-128.
  • Lee, M. T., Lee, C. L., Lee, M. L., & Liao, C. Y. (2017). “Price linkages between Australian housing and stock markets: Wealth effect, credit effect or capital switching ?” International Journal of Housing Markets and Analysis, 10(2), 305-323.
  • Lin, T. S., & Lin, Z. H. (2011). “Are stock and real estate markets integrated? An empirical study of six Asian economies”, Pacific-Basin Finance Journal, 19, 571-585.
  • Liu, Y. S., & Su, C. W. (2010). “The relationship between the real estate and stock markets of China: evidence from a nonlinear model”, Applied Financial Economics, 20(22), 1741-1749.
  • Maclennan, D., Muellbauer, J., & Stephens, M. (1998). “Asymmetries in Housing and Financial Market Institutions and EMU”, Oxford Review of Economic Policy, 14(3), 54-80.
  • Markowitz, H., (1952), “Portfolio selection”, The Journal of Finance, 7(1), 77–91.
  • Oikarinen, E. (2006). “Price linkages between stock, bond and housing markets: Evidence from Finnish data”, Working Paper, The Research Institute of Finnish Economy, Helsinki
  • Shin, Y., & Schmidt, P. (1992). “The KPSS stationarity test as a unit root test”, Economic Letters, 38, 387-392.
  • Sim, S. H., & Chang, B. K. (2006). “Stock and Real Estate Markets in Korea: Wealth or Credit-Price Effect”, Journal of Economic Research, 11, 99-122.
  • Sing, T. F., & Tan, Z. Y. (2013). “Time-varying correlations between stock and direct real estate returns”, Journal of Property Investment & Finance, 31(2), 179-195.
  • Su, C. W. (2011). “Non-linear causality between the stock and real estate markets of Western European countries: Evidence from rank tests”, Economic Modelling, 28, 845-851.
  • Su, C. W., Chang, H. L., & Jiang, C. (2013). “Does Wealth or Credit price effect exist in China?”, Romanian Journal of Economic Forecasting, 16(3), 104-114.
  • Takala, K., & Pere, P. (1991). “Testing the Cointegration of House and Stock Prices in Finland”, Finnish Economic Papers, 4(1), 33-51.
  • Tsai, I. C., Lee, C. F., & Chiang, M. C. (2012). “The Asymmetric Wealth Effect in the US Housing and Stock Markets: Evidence from the Threshold Cointegration Model”, Journal of Real Estate Finance and Economics, 45, 1005-1020.
  • Westermann, F. (2004). “Does the Euro affect the dynamic interactions of stock markets in Europe? Evidence from France, Germany and Italy”, The European Journal of Finance, 10, 139-148.
  • Wolski, R. (2020). “Co-Integration Test of Selected Indexes on the Share Market and Index of Housing Real Estate Prices”, Real Estate Management and Valuation, 28(1), 100-111.
There are 32 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Articles
Authors

Sanmoy Mukherjee 0000-0002-3871-9657

Publication Date March 26, 2022
Published in Issue Year 2022

Cite

APA Mukherjee, S. (2022). TESTING FOR LONG-RUN RELATIONSHIPS BETWEEN EUROPEAN HOUSING AND STOCK MARKETS: EVIDENCE OF THE WEALTH, CREDIT-PRICE AND CAPITAL-SWITCHING REGIME EFFECTS. Journal of Empirical Economics and Social Sciences, 4(1), 1-19. https://doi.org/10.46959/jeess.951413