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The Causal Relationship Between Real Estate and Stock Markets

Abstract

This paper examines the dynamic relationship that exists between the US real estate and S&P 500 stock markets between the years of 1972 to 1998. This is achieved by conducting both linear and nonlinear causality tests. The results from these tests provide a number of interesting observations which primarily show linear relationships to be spuriously affected by structural shifts which are inherent within the data. Linear test results generally show a uni-directional relationship to exist from the real estate market to the stock market. However, these results are not consistent with financial theory and for all sub-samples of the data. In contrast, the nonlinear causality test shows a strong unidirectional relationship running from the stock market to the real estate market, and is consistent in the presence of any structural breaks.

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Okunev, J., Wilson, P. & Zurbruegg, R. The Causal Relationship Between Real Estate and Stock Markets. The Journal of Real Estate Finance and Economics 21, 251–261 (2000). https://doi.org/10.1023/A:1012051719424

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  • DOI: https://doi.org/10.1023/A:1012051719424

  • REITS markets
  • stock markets
  • causality