A Dynamic Model for Housing Price Spillovers with an Evidence from the US and the UK Markets

Özün, A., Ertuğrul, H.M., Coşkun, Y. (2018). A Dynamic Spillover Analysis for the Aggregate and City Level Housing Prices in the US and the UK. Journal of Capital Markets Studies. Available at: SSRN: https://ssrn.com/abstract=3173498

13 Pages Posted: 18 May 2018

See all articles by Alper Ozun

Alper Ozun

Isbank of Turkey

Hasan Murat Ertugrul

Government of the Republic of Turkey - Undersecretariat of the Treasury

Yener Coskun

Capital Markets Board of Turkey

Date Written: April 25, 2018

Abstract

Purpose – The purpose of this paper is to introduce an empirical model for house price spillovers between real estate markets. The model is presented by using data from the US-UK and London-New York housing markets over a period of 1975Q1-2016Q1 by employing both static and dynamic methodologies.

Design/methodology/approach – The research analyzes long-run static and dynamic spillover elasticity coefficients by employing three methods, namely, autoregressive distributed lag, the fully modified ordinary least square and dynamic ordinary least squares estimator under a Kalman filter approach. The empirical method also investigates dynamic correlation between the house prices by employing the dynamic control correlation method.

Findings – The paper shows how a dynamic spillover pricing analysis can be applied between real estate markets. On the empirical side, the results show that country-level causality in housing prices is running from the USA to UK, whereas city-level causality is running from London to New York. The model outcomes suggest that real estate portfolios involving US and UK assets require a dynamic risk management approach.

Research limitations/implications – One of the findings is that the dynamic conditional correlation between the US and the UK housing prices is broken during the crisis period. The paper does not discuss the reasons for that break, which requires further empirical tests by applying Markov switching regime shifts. The timing of the causality between the house prices is not empirically tested. It can be examined empirically by applying methods such as wavelets.

Practical implications – The authors observed a unidirectional causality from London to New York house prices, which is opposite to the aggregate country-level causality direction. This supports London’s specific power in the real estate markets. London has a leading role in the global urban economies residential housing markets and the behavior of its housing prices has a statistically significant causality impact on the house prices of New York City.

Social implications – The house price co-integration observed in this research at both country and city levels should be interpreted as a continuity of real estate and financial integration in practice.

Originality/value – The paper is the first research which applies a dynamic spillover analysis to examine the causality between housing prices in real estate markets. It also provides a long-term empirical evidence for a dynamic causal relationship for the global housing markets.

Keywords: Dynamic correlation analysis, House price spillover, The UK housing market, The US housing market

JEL Classification: R31, R32, C58

Suggested Citation

Ozun, Alper and Ertugrul, Hasan Murat and Coskun, Yener, A Dynamic Model for Housing Price Spillovers with an Evidence from the US and the UK Markets (April 25, 2018). Özün, A., Ertuğrul, H.M., Coşkun, Y. (2018). A Dynamic Spillover Analysis for the Aggregate and City Level Housing Prices in the US and the UK. Journal of Capital Markets Studies. Available at: SSRN: https://ssrn.com/abstract=3173498, Available at SSRN: https://ssrn.com/abstract=3173498

Alper Ozun

Isbank of Turkey ( email )

Istanbul
Turkey

Hasan Murat Ertugrul

Government of the Republic of Turkey - Undersecretariat of the Treasury ( email )

TR-06510 Ankara
Turkey

Yener Coskun (Contact Author)

Capital Markets Board of Turkey ( email )

Eskisehir Yolu 8. km No:156
Ankara, 06530
Turkey

HOME PAGE: http://ankara.academia.edu/yenercoskun

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