The nexus between stock market index and apartment and villa prices: Granger causality test of Swedish data

Abstract

Purpose

The purpose of this study is to investigate the Granger causal link between the stock market index and housing prices in terms of apartment and villa prices.

Design/methodology/approach

Monthly data from September 2005 to October 2013 on apartment prices, villa prices, the stock market index, mortgage rates and the consumer price index were used. Statistical methods were applied to explore the long-run co-integration and Granger causal link between the stock market index and apartment and villa prices in Sweden.

Findings

The results indicate that the stock market index and housing prices are co-integrated and that a long-run equilibrium relationship exists between them. According to the Granger causality tests, bidirectional relationships exist between the stock market index and apartment and villa prices, respectively, supporting the wealth and credit-price effects. Moreover, variations in apartment and villa prices are primarily caused by endogenous shocks.

Originality/value

To the authors’ best knowledge, this study represents a first analysis of the causal nexus between the stock market and the housing market in terms of apartment and villa prices in the Swedish context using a vector error-correction model to analyze monthly data.

Citation

Öhman, P. and Yazdanfar, D. (2017), "The nexus between stock market index and apartment and villa prices: Granger causality test of Swedish data", International Journal of Housing Markets and Analysis, Vol. 10 No. 3, pp. 450-467. https://doi.org/10.1108/IJHMA-09-2016-0069