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The co-movement and causality between housing and stock markets in the time and frequency domains considering inflation

The co-movement and causality between housing and stock markets in the time and frequency domains... The purpose of this paper is to examine the causal relationship between Chinese housing and stock markets. The authors discuss the three transmission mechanisms between the two markets: wealth effect, modern portfolio theory and credit-price effect. Moreover, the authors focus on the effects of inflation on the relationship between the two markets.Design/methodology/approachThis paper uses wavelet analysis to test the housing and stock markets relationship both in the frequency domain and time domain.FindingsThe empirical results indicate that housing prices have a positive effect on stock prices, and these have the same effect on housing prices. Moreover, this positive effect means that stock prices have a wealth effect on housing prices and these have a credit-price effect on stock prices.Research limitations/implicationsThese results provide information to financial institutions and individual investors in China to assist them in constructing investment portfolios within these two asset markets.Originality/valueThe authors first use wavelet analysis to analyze Chinese housing and stock markets and to provide information both on the frequency domain and time domain. Moreover, the authors take the inflation factor as a control variable in the causal relationship between the housing and stock markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

The co-movement and causality between housing and stock markets in the time and frequency domains considering inflation

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References (45)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2044-1398
DOI
10.1108/cfri-06-2017-0061
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to examine the causal relationship between Chinese housing and stock markets. The authors discuss the three transmission mechanisms between the two markets: wealth effect, modern portfolio theory and credit-price effect. Moreover, the authors focus on the effects of inflation on the relationship between the two markets.Design/methodology/approachThis paper uses wavelet analysis to test the housing and stock markets relationship both in the frequency domain and time domain.FindingsThe empirical results indicate that housing prices have a positive effect on stock prices, and these have the same effect on housing prices. Moreover, this positive effect means that stock prices have a wealth effect on housing prices and these have a credit-price effect on stock prices.Research limitations/implicationsThese results provide information to financial institutions and individual investors in China to assist them in constructing investment portfolios within these two asset markets.Originality/valueThe authors first use wavelet analysis to analyze Chinese housing and stock markets and to provide information both on the frequency domain and time domain. Moreover, the authors take the inflation factor as a control variable in the causal relationship between the housing and stock markets.

Journal

China Finance Review International – Emerald Publishing

Published: Feb 14, 2018

Keywords: Housing market; Stock market; Frequency domain; Time domain; Wavelet analysis; C32; E44; G11

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