The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains

34 Pages Posted: 30 Nov 2013 Last revised: 31 Aug 2016

See all articles by Tsangyao Chang

Tsangyao Chang

Feng Chia University - Finance

Xiao-Lin Li

Wuhan University - School of Economics and Management

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Mehmet Balcilar

Eastern Mediterranean University

Rangan Gupta

University of Pretoria - Department of Economics

Date Written: November 29, 2013

Abstract

This study applies wavelet analysis to examine the relationship between the U.S. real estate and stock markets over the period 1890-2012. Wavelet analysis allows the simultaneous examination of co-movement and causality between the two markets in both the time and frequency domains. Our findings provide robust evidence that co-movement and causality vary across frequencies and evolve with time. Examining market co-movement in the time domain, the two markets exhibit positive co-movement over recent past decades, exception for 1998-2002 when a high negative co-movement emerged. In the frequency domain, the two markets correlate with each other mainly at low frequencies (longer term), except in the second half of the 1900s as well as in 1998-2002, when the two markets correlate at high frequencies (shorter term). In addition, we find that the causal effects between the markets in the frequency domain occur generally at low frequencies (longer term). In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two markets. These findings provide a more complete picture of the relationship between the U.S. real estate and stock markets over time and frequency, offering important implications for policymakers and practitioners.

Keywords: stock market, real estate market, wavelet analysis, frequency domain, time domain

JEL Classification: C49, E44, G11

Suggested Citation

Chang, Tsangyao and Li, Xiao-Lin and Miller, Stephen M. and Balcilar, Mehmet and Gupta, Rangan, The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains (November 29, 2013). International Review of Economics & Finance, July 2015. Available at SSRN: https://ssrn.com/abstract=2361527 or http://dx.doi.org/10.2139/ssrn.2361527

Tsangyao Chang

Feng Chia University - Finance ( email )

Talchung
Taiwan

Xiao-Lin Li

Wuhan University - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Mehmet Balcilar

Eastern Mediterranean University ( email )

Gazimagusa
Turkey

HOME PAGE: http://www.mbalcilar.net

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

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