Time–Scale Relationship between Securitized Real Estate and Local Stock Markets: Some Wavelet Evidence

摘要

This study revisits the relationship between securitized real estate and local stock marketsby focusing on their time-scale co-movement and contagion dynamics across five developed countries.Since securitized real estate market is an important capital component of the domestic stock market inthe respective economies, it is linked to the stock market. Earlier research does not have satisfactoryresults, because traditional methods average different relationships over various time and frequencydomains between securitized real estate and local stock markets. According to our novel waveletanalysis, the relationship between the two asset markets is time–frequency varying. The averagelong run real estate–stock correlation fails to outweigh the average short run correlation, indicatingthe real estate markets examined may have become increasingly less sensitive to the domestic stockmarkets in the long-run in recent years. Moreover, securitized real estate markets appear to lead stockmarkets in the short run, whereas stock markets tend to lead securitized real estate markets in thelong run, and to a lesser degree medium-term. Finally, we find incomplete real estate and local stockmarket integration among the five developed economies, given only weaker long-run integrationbeyond crisis periods.