The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains

Tsangyao Chang, Xiao-lin Li (), Stephen Miller, Mehmet Balcilar and Rangan Gupta
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Xiao-lin Li: Department of Finance, School of Economics and Management, Wuhan University, Wuhan, China

No 201365, Working Papers from University of Pretoria, Department of Economics

Abstract: This study applies wavelet analysis to examine the relationship between the U.S. real estate and stock markets over the period 1890-2012. Wavelet analysis allows the simultaneous examination of co-movement and causality between the two markets in both the time and frequency domains. Our findings provide robust evidence that co-movement and causality vary across frequencies and evolve with time. Examining market co-movement in the time domain, the two markets exhibit positive co-movement over recent past decades, exception for 1998-2002 when a high negative co-movement emerged. In the frequency domain, the two markets correlate with each other mainly at low frequencies (longer term), except in the second half of the 1900s as well as in 1998-2002, when the two markets correlate at high frequencies (shorter term). In addition, we find that the causal effects between the markets in the frequency domain occur generally at low frequencies (longer term). In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two markets. These findings provide a more complete picture of the relationship between the U.S. real estate and stock markets over time and frequency, offering important implications for policymakers and practitioners.

Keywords: Stock market; real estate market; wavelet analysis; frequency domain; time domain (search for similar items in EconPapers)
JEL-codes: C49 E44 G11 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013-11
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains (2014)
Working Paper: The Co-Movement and Causality between the U.S. Real Estate and Stock Markets in the Time and Frequency Domains (2013)
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