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The causality between house prices and stock prices: evidence from seven European countries
Kristianstad University, Faculty of Business, Avdelningen för ekonomi.ORCID iD: 0000-0003-0447-9349
2020 (English)In: International Journal of Housing Markets and Analysis, ISSN 1753-8270, E-ISSN 1753-8289Article in journal (Refereed) Published
Abstract [en]

Purpose

This paper aims to examine whether there exists a long-run causal relationship between the prices of households’ two major assets: stocks and houses over the period 1975Q1–2017Q1 for seven major European countries.

Design/methodology/approach

The paper uses the bootstrap panel Granger causality approach to determine the causal structure, focusing on cross-sectional dependence, slope heterogeneity and structural breaks.

Findings

The findings show that, in most cases, there is a unidirectional causality running from stock price to house price but the converse is not true. This confirms a strong wealth effect in housing markets. The findings are important for not only households but also policymakers concerned with financial stability and housing prices.

Originality/value

First, the methodology used here devotes full attention to dynamic co-movement between housing and stock markets. Second, this study uses a rather long quarterly data, which implies that the findings could be robust. Third, the study uses real personal disposable income as a control variable to remove the effects of economic growth. Fourth, most of the previous studies do not consider the presence of structural breaks and this makes the result of causality invalid and biased. Fifth, most of the previous studies on housing and stock markets concentrated on the US and non-European countries such as China, Korea and Singapore.

Place, publisher, year, edition, pages
2020.
Keywords [en]
Houseprices; Stockprices; Panelcausality; Households; Tobin’sQ; Permanent income hypothesis
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:hkr:diva-20583DOI: 10.1108/IJHMA-02-2020-0013ISI: 000530681200001OAI: oai:DiVA.org:hkr-20583DiVA, id: diva2:1429357
Available from: 2020-05-11 Created: 2020-05-11 Last updated: 2020-05-26Bibliographically approved

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Irandoust, Manuchehr
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CiteExportLink to record
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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf