Returns Predictability in Emerging Housing Markets

Journal of Economic Cooperation and Development, 37, 1 (2016), 101-130

Fox School of Business Research Paper No. 16-037

30 Pages Posted: 13 Aug 2016 Last revised: 16 Dec 2016

See all articles by Bora Ozkan

Bora Ozkan

Temple University Fox School of Business

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Ali Hepsen

Istanbul University - Faculty of Business Administration, Department of Finance

Date Written: March 1, 2016

Abstract

This essay searches for a link between house prices, broad money, private credit and the macro-economy among 19 emerging markets. We also explain which variables predict the emerging markets house price index returns. The analysis consists of data for 19 emerging markets spanning the period 1966-2012. To investigate the relationship among our variables as well as the direction of the relationship, we used Fixed-Effects Panel Data Approach, Vector Auto-Regression, Granger Causality, and Variance Decomposition analysis. Using the fixed effects panel data approach, this paper analyzes the variation in 19 emerging markets house price index returns. Our results show that money market rate, growth in GDP and CPI as well as log of private credit (D) and money supply (M3) have significant predictive power on growth in house price indices a quarter ahead. There is a strong negative correlation between the growth in house price indices and the lagged money market rates and private credit. There is a strong positive correlation between the growth in house price indices and the lagged growth in GDP, CPI and log of M3. When we look at different regions, we show that in Eastern Europe only GDP has a predictive power whereas in Asia MMR, D as well as M3 has statistically significant predictive power. Granger causality tests for each country reveals strong evidence of multi-directional link between house prices, GDP, CPI, interest rates, money, and credit. House prices significantly affect the future broad money, private credit and macro variables. When we look at the variance decomposition, in almost every country we investigated, forecast errors to GDP, CPI and money market rate play an important role in explaining innovations to the house price index returns.

Keywords: House Prices, Broad Money, Private Credit, Emerging Markets

JEL Classification: R30, R31, E51,

Suggested Citation

Ozkan, Bora and Hassan, M. Kabir and Hepsen, Ali, Returns Predictability in Emerging Housing Markets (March 1, 2016). Journal of Economic Cooperation and Development, 37, 1 (2016), 101-130 ; Fox School of Business Research Paper No. 16-037. Available at SSRN: https://ssrn.com/abstract=2821767

Bora Ozkan (Contact Author)

Temple University Fox School of Business ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-8409 (Phone)

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Ali Hepsen

Istanbul University - Faculty of Business Administration, Department of Finance ( email )

Istanbul
Turkey

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