Linkages between cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles: Evidence from G7. Issue 2 (1st August 2016)

• Record Type: Journal Article
• Authors: Liow, Kim Hiang
• Is Part Of: Journal of European real estate research. Volume 9:Issue 2(2016)
• Page Start: 123
• Page End: 146
• Publication Date: 2016-08-01
• Subjects: Business cycles -- Cycle spillovers -- Dynamic correlations and cohesions -- Real estate market cycles -- Stock market cycles -- Cycle spillover effects; Real property -- Economic aspects -- Europe -- Periodicals; Commercial real estate -- Europe -- Periodicals; Housing -- Finance -- Periodicals; Housing -- Europe -- Periodicals; 333.5068
• DOI: 10.1108/JERER-05-2015-0024
• Languages: English
• ISSNs: 1753-9269

Abstract

Abstract : Purpose: This research aims to investigate whether and to what extent the co-movements of cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles are linked across G7 from February 1990 to June 2014. Design/methodology/approach: The empirical approaches include correlation analysis on Hodrick–Prescott (HP) cycles, HP cycle return spillovers effects using Diebold and Yilmaz's (2012) spillover index methodology, as well as Croux et al. 's (2001) dynamic correlation and cohesion methodology. Findings: There are fairly strong cycle-return spillover effects between the cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles. The interactions among the cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles in G7 are less positively pronounced or exhibit counter-cyclical behavior at the traditional business cycle (medium-term) frequency band when "pure" stock market cycles are considered. Research limitations/implications: The research is subject to the usual limitations concerning empirical research. Practical implications: This study finds that real estate is an important factor in influencing the degree and behavior of the relationship between cross-country business cycles and cross-country stock market cycles in G7. It provides important empirical insights for portfolio investors to understand and forecast the differential benefits and pitfalls of portfolio diversification in the long-, medium- and short-cycle horizons, as well as for research studying the linkages between the real economy and financial sectors. Originality/value: In adding to the existing body of knowledge concerning economic globalization and financial market interdependence, this study evaluates the linkages between business cycles, stock market cycles and public real estate market cycles cross G7 and adds to the academic real estate literature. Because public real estate market is a subset of stock market, our approach is to use an original stock market index, as well as a "pure" stock market index (with the influence of real estate market removed) to offer additional empirical insights from two key complementary perspectives.