Co-Integration Test of Selected Indexes on the Share Market and Index of Housing Real Estate Prices

Abstract

The integration of financial markets is an ongoing process throughout the world. Research shows that, from Australia through Europe to the United States, the capital and real estate markets are integrating, influencing each other. Although this process seems obvious, only research can show whether it actually occurs. Identifying these relationships is important for analyzing the entire market. Many methods, such as estimating the cost of equity, have been developed with the stock market in mind. Meanwhile, real estate valuation requires the cost of equity. Market integration is the rationale for using equity market methods on the real estate market.Aim of the work - the research is aimed at verifying whether there is cointegration between the secondary housing market and the stock market. A research hypothesis was put forward: the stock market and secondary housing market are integrated.Research methodology - the study used co-integration analysis using the Engle-Granger test. The study was conducted in the period from the third quarter of 2006 to the fourth quarter of 2018.Result - The tests carried out showed the existence of co-integration in one out of 36 cases for the explanatory variable - the delayed WIG index and the explained variable in the average price of residential real estate on the secondary market for the 7 largest Polish cities.Originality / Value - demonstrating the co-integration of markets justifies the use of analytical methods developed for stock markets on real estate markets. The research has no equivalent study on the Polish market. Similar analyses were carried out, but not for the stock and real estate market.

Testing for Long-Run Relationships between European Housing and Stock Markets: Evidence of the Wealth, Credit-price and Capital-switching Regime Effects

“…Furthermore, Oikarinen (2006) laid out the possibility of a negative causal relationship between house prices and stock prices due to house markets being driven by local factors whereas global factors drive stock prices. Apergis and Lambrinidis (2007) and Wolski (2020) are one of the few authors who incorporated the conventional method of cointegration for house markets and stock markets. Apergis and Lambrinidis (2007) remarked an integration of both the stock markets and unsecuritized real estate markets in addition to the wealth effects for both the UK and the US.…”

“…Apergis and Lambrinidis (2007) remarked an integration of both the stock markets and unsecuritized real estate markets in addition to the wealth effects for both the UK and the US. Wolski (2020) extrapolated cointegration results for the seven Polish cities. He implemented the Engle-Granger (1987) test from the third quarter of 2006 to the fourth quarter of 2018 and found that there was little or no case of cointegration.…”

“…He implemented the Engle-Granger (1987) test from the third quarter of 2006 to the fourth quarter of 2018 and found that there was little or no case of cointegration. The generalisability of Apergis and Lambrinidis (2007) and Wolski (2020) can be questioned because they implemented the orthodox norms of cointegration that does not take into account the asymmetric volatilities of both indices. To overcome the hindrances of a biased result for the conventional model, several studies have incorporated asymmetric cointegration for this topic.…”