Foreign Ownership of Stocks and Long-run Interdependence Between National Housing and Stock Markets—Evidence from Finnish Data

Foreign Ownership of Stocks and Long-run Interdependence Between National Housing and Stock... Globalization of the financial markets may have undermined co-movement between stock and housing markets, at least in small open economies. This paper provides an empirical study on the long-term dynamic interrelation between stock and housing markets in a small open economy with special attention to the effect of foreign investors on the dynamics. The empirical findings, based on a quarterly dataset from Finland over 1970-2006, do not support the hypothesis of diminished co-movement between Finnish stock and housing markets after the abolishment of the foreign ownership restrictions of stocks in 1993. The markets still appear to be tightly interdependent in the long run. Nevertheless, the results suggest that the substantial growth in the foreign ownership of Finnish stocks induced a large and long-lasting deviation from the cointegrating long-run relation between stock and housing prices. The results also imply that diversification between stock and housing markets works the worse the longer the investment horizon is. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Foreign Ownership of Stocks and Long-run Interdependence Between National Housing and Stock Markets—Evidence from Finnish Data

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-009-9175-1
Publisher site
See Article on Publisher Site

Abstract

Globalization of the financial markets may have undermined co-movement between stock and housing markets, at least in small open economies. This paper provides an empirical study on the long-term dynamic interrelation between stock and housing markets in a small open economy with special attention to the effect of foreign investors on the dynamics. The empirical findings, based on a quarterly dataset from Finland over 1970-2006, do not support the hypothesis of diminished co-movement between Finnish stock and housing markets after the abolishment of the foreign ownership restrictions of stocks in 1993. The markets still appear to be tightly interdependent in the long run. Nevertheless, the results suggest that the substantial growth in the foreign ownership of Finnish stocks induced a large and long-lasting deviation from the cointegrating long-run relation between stock and housing prices. The results also imply that diversification between stock and housing markets works the worse the longer the investment horizon is.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Mar 24, 2009

References

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