Nonlinear short-run adjustments between house and stock prices in emerging Asian regions

Abstract

This study uses the powerful nonparametric cointegration test to examine whether nonlinear cointegration exists between prices of used houses and corresponding stock markets in China and the four Asian Tigers. Then, it uses the smooth transition vector error-correction model (STVECM) to explore the adjustment efficiencies of the short-run house and corresponding stockreturn dynamics when there is disequilibrium between house and stock prices. The empirical results indicate that there is a nonlinear cointegration between the house prices and corresponding stock prices in China, South Korea, Singapore, and Taiwan, and that the speed of price adjustment to equilibrium is always greater for houses than stocks when there are large positive and negative deviations. Moreover, the short-run speed of adjustment of the large negative and positive deviations is equal in China, South Korea, and Taiwan, but unequal in Singapore. With the exception of South Korea, the results of the Granger causality test indicate that stock prices clearly lead used house prices, which means a wealth effect exists in most Asian countries. Our study confirms that the STVECM can be used to analyze the short-run adjustment efficiency of house and stock return dynamics in China, South Korea, Singapore, and Taiwan; thus, supporting models of interaction between noise and arbitrage traders.

The dynamic effect of macroeconomic factors on housing prices: Evidence from South Africa

“…In contrast, their results also showed a significant negative impact of stock prices on house prices for Germany and Switzerland. [ 38 ]’s granger causality test revealed the existence of a wealth effect in most Asian emerging markets (China, Singapore, Taiwan, and Hong Kong) where stock prices had a positive impact on house prices and a negative impact on South Korea house prices.…”