Correlated Risk and Volatility Spillovers across U.S. Regional Housing Markets

32 Pages Posted: 13 Sep 2009 Last revised: 29 May 2013

See all articles by Bing Zhu

Bing Zhu

University of Reading - Henley Business School

Roland Füss

University of St. Gallen - School of Finance

Nico B. Rottke

European Business School (EBS) Wiesbaden - Department Finance, Accounting & Real Estate

Date Written: January 15, 2011

Abstract

This paper models the correlated shocks across regional housing markets and the spillover effects in time-varying housing price volatilities. We explore two kinds of diffusion channels: geographic closeness and economic similarity. Our empirical investigation is based on the Case-Shiller housing price indices from 2000 to 2008 for the twenty major U.S. housing markets. The results demonstrate that extra volatility can be caused by shocks in other regions. In particular, we find significant contagion effects during the 2007-2008 subprime crisis and the subsequent financial crisis. We define contagion as structural changes in spatial volatility spillover intensities. Both channels play important roles in risk spreading, but the weight of the economic channel is greater during times of market stress than during normal market conditions. This indicates that shocks have a greater tendency to spread nationwide between economic similar regions during market downturns.

Keywords: Spatial autocorrelation, volatility spillover effects, contagion, dynamic panel estimation, GARCH process

JEL Classification: C21, C23, R15

Suggested Citation

Zhu, Bing and Füss, Roland and Rottke, Nico B., Correlated Risk and Volatility Spillovers across U.S. Regional Housing Markets (January 15, 2011). Available at SSRN: https://ssrn.com/abstract=1472406 or http://dx.doi.org/10.2139/ssrn.1472406

Bing Zhu

University of Reading - Henley Business School ( email )

Greenlands
Henley, RG9 3AU
United Kingdom

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Nico B. Rottke

European Business School (EBS) Wiesbaden - Department Finance, Accounting & Real Estate ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany
0611-36 018 931 (Phone)
0611-36 018 902 (Fax)

HOME PAGE: http://www.rem-institute.org

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