Long-Run Stock Price-House Price Relation: Evidence from an ESTR Model
10 Pages Posted: 22 Aug 2011
Date Written: August 22, 2011
Abstract
The direction of any long-run relationship between stock prices and house prices provides useful information for policy makers and practitioners regarding the presence of wealth and credit effects. Using quarterly data from the UK and US this paper reports evidence of non-linear dynamics in the adjustment to equilibrium. Specifically, the equilibrium-deviation must become large before stock prices revert. However, there is no evidence that house price adjust to any disequilbrium. This supports a credit effect on stock prices.
Keywords: House Prices, Stock Prices, ESTR Model, Credit Effect
JEL Classification: C22, G12
Suggested Citation: Suggested Citation