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Article
Publication date: 1 January 2005

Ahmed Riahi‐Belkaoui

This paper examines how accounting quality, as measured by earnings opacity, affects the stock market wealth effect, which in turn is shown to be linked to economic…

Abstract

This paper examines how accounting quality, as measured by earnings opacity, affects the stock market wealth effect, which in turn is shown to be linked to economic growth. Stock market wealth effect is negatively affected by earnings opacity. The data also indicate that the exogenous component of the stock market wealth effect — the component defined by earnings opacity‐ is positively associated with economic growth. The direct effect of earnings opacity on economic growth is, as expected negative, but insignificant.

Details

Review of Accounting and Finance, vol. 4 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 6 May 2020

Manuchehr Irandoust

This paper aims to examine whether there exists a long-run causal relationship between the prices of households’ two major assets: stocks and houses over the period…

Abstract

Purpose

This paper aims to examine whether there exists a long-run causal relationship between the prices of households’ two major assets: stocks and houses over the period 1975Q1–2017Q1 for seven major European countries.

Design/methodology/approach

The paper uses the bootstrap panel Granger causality approach to determine the causal structure, focusing on cross-sectional dependence, slope heterogeneity and structural breaks.

Findings

The findings show that, in most cases, there is a unidirectional causality running from stock price to house price but the converse is not true. This confirms a strong wealth effect in housing markets. The findings are important for not only households but also policymakers concerned with financial stability and housing prices.

Originality/value

First, the methodology used here devotes full attention to dynamic co-movement between housing and stock markets. Second, this study uses a rather long quarterly data, which implies that the findings could be robust. Third, the study uses real personal disposable income as a control variable to remove the effects of economic growth. Fourth, most of the previous studies do not consider the presence of structural breaks and this makes the result of causality invalid and biased. Fifth, most of the previous studies on housing and stock markets concentrated on the US and non-European countries such as China, Korea and Singapore.

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International Journal of Housing Markets and Analysis, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8270

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Book part
Publication date: 29 January 2021

Michael K. Fung and Arnold C. S. Cheng

Using a sample of developed and developing nations (including China and Hong Kong), this study examines the financial market and housing wealth effects on consumption…

Abstract

Using a sample of developed and developing nations (including China and Hong Kong), this study examines the financial market and housing wealth effects on consumption. Housing performs the dual functions as both a commodity providing a flow of housing services and an investment providing a flow of capital income. With an empirical framework based on the permanent income hypothesis, this study's findings suggest that a rise in housing price has both a positive wealth effect and a negative price effect on consumption. While the positive wealth effect is caused by an increase in capital income from housing investment, the negative price effect is caused by an increase in the cost of consuming housing services. Moreover, the sensitivity of consumption to unanticipated changes in housing price is related to the level of financial and institutional development.

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Modeling Economic Growth in Contemporary Hong Kong
Type: Book
ISBN: 978-1-83909-937-3

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Article
Publication date: 28 April 2020

Imran Yousaf and Shoaib Ali

This study aims to empirically examine the relationship between real estate and stock market of Pakistan.

Abstract

Purpose

This study aims to empirically examine the relationship between real estate and stock market of Pakistan.

Design/methodology/approach

The data of two real estate indices (house price index and plot price index) are taken for the Pakistan and its four big cities, i.e. Lahore, Karachi, Rawalpindi and Islamabad. It estimates the integration between series by applying the Johansen cointegration test. Moreover, the vector error correction model is applied to examine the short and long-run causal relationships between series.

Findings

The findings show that the real estate markets are cointegrated with the stock market. They imply that the real estate and stock markets are good substitutes in investment allocation, but investors cannot get the benefit of diversification by making a portfolio of real estate and stock markets in Pakistan. Moreover, the long-run causality is observed from majority house markets to the stock market, whereas short-run causality is evident from majority plot markets to the stock market. Hence, the real estate market leads the stock market in the short run and long run, suggesting the credit-price effect in the majority of real estate markets in Pakistan. These causality results are helpful for investors in the forecasting of real estate and stock markets in Pakistan.

Research limitations/implications

The limitation of the study is the lower number of observations (107), because house and land prices are only available in monthly frequency from January 2011 in Pakistan.

Originality/value

To the best of the authors’ knowledge, no researcher has investigated the real estate and stock market nexus in Pakistan. Therefore, this study focuses on examining the relationship between the real estate and stock market of Pakistan. The link between real estate and stock markets will provide useful insights to the portfolio managers, real estate companies, property agents, stockbrokers and investors.

Details

International Journal of Housing Markets and Analysis, vol. 13 no. 5
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 9 March 2010

Mansor H. Ibrahim and Muzafar Shah Habibullah

The purpose of this paper is to analyze the influences of real share prices on aggregate consumption for Malaysia with the focus on whether there is asymmetry in the…

Abstract

Purpose

The purpose of this paper is to analyze the influences of real share prices on aggregate consumption for Malaysia with the focus on whether there is asymmetry in the long‐run relation of the two variables.

Design/methodology/approach

The paper specifies aggregate consumption to depend on real income and real share prices. Alternatively, imposing long‐run budget constraint, the paper specifies the relation between aggregate consumption and real share prices as ratio to real income. Then, it applies an asymmetric cointegration and error correction modeling.

Findings

The cointegration tests indicate the presence of a long‐run relation between consumption‐income ratio and share price‐income ratio. More interestingly, while changes in share prices exert short‐run causal influences on Malaysia's private consumption, evidence is found for the adjustments of consumption – income ratio to the long‐run equilibrium path only when it is above its long‐run value. The paper interprets the finding as suggesting downward revisions in the consumption patterns when there are adverse shocks in share prices and, accordingly, supports the existence of especially negative wealth effect for Malaysia.

Research limitations/implications

Owing to data limitations, the paper relies on aggregate consumption and aggregate income data. It acknowledges that the sum of non‐durable consumption and flow‐of‐services from durable purchases and labor income are more appropriate measures of, respectively, consumption and real income.

Originality/value

The findings have important implications for understanding consumption behavior in a developing country and can provide insight on the effectiveness of monetary policy.

Details

Studies in Economics and Finance, vol. 27 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 3 April 2019

Korhan Gokmenoglu and Siamand Hesami

Real estate and stocks are two major asset types in an investor’s portfolio. Therefore, this paper aims to investigate the relationship between these two markets to…

Abstract

Purpose

Real estate and stocks are two major asset types in an investor’s portfolio. Therefore, this paper aims to investigate the relationship between these two markets to provide a valuable insight into the process of portfolio optimization and security selection.

Design/methodology/approach

This study examines the long-run relationship between residential real estate prices and stock market index in the case of Germany for the period of 2005-2017 by applying time series econometrics techniques. To this aim, this study uses Hedonic House Price Index as a proxy for real estate prices and DAX30 as a proxy for stock prices. Moreover, three additional variables, namely, consumer confidence, credit availability and supply of mortgage loans, are incorporated as control variables to assess the robustness of the results.

Findings

Obtained empirical results indicate a long-run relationship between stock prices and real estate prices which suggests that in long-run, there is no diversification benefit from allocating stock and real estate assets in a portfolio. This finding is especially important for long-term investors such as pension funds.

Originality/value

To the authors’ best knowledge, this is the first study that empirically investigates the relationship between the real estate market and stock prices using the Hedonic Price Index for the case of Germany.

Details

International Journal of Housing Markets and Analysis, vol. 12 no. 4
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 22 March 2021

Sudeshna Ghosh

The purpose of this paper is to examine the asymmetric impact of economic policy uncertainty (EPU) on the volatility of the housing price index (RP) based on quarterly…

Abstract

Purpose

The purpose of this paper is to examine the asymmetric impact of economic policy uncertainty (EPU) on the volatility of the housing price index (RP) based on quarterly observations from major European countries, namely, France, Germany, Sweden, Greece Italy and the UK.

Design/methodology/approach

The nonlinear autoregressive distributed lag model method is used to investigate the asymmetric impact of EPU on RP. In addition to considering EPU as the explanatory variable, industrial production (IP) (as a proxy for economic growth), interest rate (I), inflationary tendency (Consumer Price Index) and share prices (S) are included as major control variables. The period of the observations runs from 1996Q1 to 2019Q1.

Findings

The Wald test confirms the long-run asymmetric relationship for all countries. The alternative specification of the data sets reconfirms the asymmetric impact on RP in the long run, thereby verifying the robustness of the study.

Research limitations/implications

The study has implications for investors seeking to incorporate housing price behaviour within their portfolio structure. The analysis and findings are constrained by the availability of data.

Originality/value

This is one of the few studies on housing price dynamics related to the major economies of the European region that explore asymmetries. Additionally, it is the first to explore the asymmetry dynamics using the EPU variable.

Details

International Journal of Housing Markets and Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 12 April 2018

Justine Wang, Alla Koblyakova, Piyush Tiwari and John S. Croucher

This paper aims to explore principal drivers affecting prices in the Australian housing market, aiming to detect the presence of housing bubbles within it. The data set…

Abstract

Purpose

This paper aims to explore principal drivers affecting prices in the Australian housing market, aiming to detect the presence of housing bubbles within it. The data set analyzed covers the past two decades, thereby including the period of the most recent housing boom between 2012 and 2015.

Design/methodology/approach

The paper describes the application of combined enhanced rigorous econometric frameworks, such as ordinary least square (OLS), Granger causality and the Vector Error Correction Model (VECM) framework, to provide an in-depth understanding of house price dynamics and bubbles in Australia.

Findings

The empirical results presented reveal that Australian house prices are driven primarily by four key factors: mortgage interest rates, consumer sentiment, the Australian S&P/ASX 200 stock market index and unemployment rates. It finds that these four key drivers have long-term equilibrium in relation to house prices, and any short-term disequilibrium always self-corrects over the long term because of economic forces. The existence of long-term equilibrium in the housing market suggests it is unlikely to be in a bubble (Diba and Grossman, 1988; Flood and Hodrick, 1986).

Originality/value

The foremost contribution of this paper is that it is the first rigorous study of housing bubbles in Australia at the national level. Additionally, the data set renders the study of particular interest because it incorporates an analysis of the most recent housing boom (2012-2015). The policy implications from the study arise from the discussion of how best to balance monetary policy, fiscal policy and macroeconomic policy to optimize the steady and stable growth of the Australian housing market, and from its reconsideration of affordability schemes and related policies designed to incentivize construction and the involvement of complementary industries associated with property.

Details

International Journal of Housing Markets and Analysis, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 2 November 2015

Muhammad Ali Nasir, Mushtaq Ahmad, Ferhan Ahmad and Junjie Wu

The purpose of this paper is to provide a different context for considering issues of financial stability and instability, with reference to economic growth and price…

Abstract

Purpose

The purpose of this paper is to provide a different context for considering issues of financial stability and instability, with reference to economic growth and price stability in particular.

Design/methodology/approach

This paper pursued an empirical exploration of six pillars of financial stability, based on a data set for the UK extending from 1985 (Q1) to 2008 (Q2), through the construction of a vector error correction model, including an impulse response function analysis.

Findings

The findings show a strong association between the financial and economic stability even in a non-crisis regime. This includes, for example, a strong association exists between the stock market and the real economy; exchange rate appreciation may not provide for long-term real economic growth; inflation does not contribute to real economic growth, both the sensitivity of the economy to yields and a significant lag in transitional effects from financial markets to the real sector; a positive role of credit creation within a non-crisis regime; exchange rate appreciation affects purchasing power; and potential points of linkage between sovereign debt activity and general price levels.

Research limitations/implications

The findings should be considered in the context of a concept of the economy as fundamentally dynamic and subject to complex cumulative processes.

Practical implications

The findings indicate there is a role for state oversight and intervention within a non-crisis regime based on the complexity of possible interactions that may undermine financial and price stability, with consequences for their association with economic growth.

Originality/value

The study provides a new perspective for considering issues of financial stability and instability.

Details

Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

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Case study
Publication date: 20 January 2017

Wei Li

The case has been used in a first-year required course called Global Economies and Markets in a module on monetary policy. On October 24, 2005, President Bush nominated…

Abstract

The case has been used in a first-year required course called Global Economies and Markets in a module on monetary policy. On October 24, 2005, President Bush nominated Ben S. Bernanke to be chairman of the board of governors of the Federal Reserve System for a term of four years along with a 14-year term on the board of governors. With the U.S. Senate confirmation widely anticipated, Bernanke was expected to take over stewardship of the U.S. monetary policy from Chairman Alan Greenspan when he retired in January 2006. While the U.S. economy was in good shape at the end of 2005, Bernanke had to prepare to deal with two challenges when charting a course for managing U.S. monetary policy. First, the sharp rise in energy prices that began in 2002 had the potential to bring back the specter of inflation and dampen desired consumer and business spending. Second, the housing boom could turn into a housing bust, throwing the mortgage industry into turmoil and weakening consumer business confidence. There was also the possibility that the housing bust could affect broader financial markets. Bernanke had to consider his options for dealing with contingencies in the not-so-distant future.

Details

Darden Business Publishing Cases, vol. no.
Type: Case Study
ISSN: 2474-7890
Published by: University of Virginia Darden School Foundation

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