Home • PRRES Inc. Journal • Read the Journal

Dynamic Relationships Between Economic Globalisation and Cross-Public Property Market Correlations

Author/s: Liow Kim Hiang, Ye Qing

Date Published: 1/01/2014

Published in: Volume 20 - 2014 Issue 2 (pages 93 - 118)

Abstract

In this paper, the dynamics and current status of economic globalization and cross-public property market correlations, as well as their linkages, among the three Greater China (GC) economies (mainland China, Hong Kong and Taiwan) and across the GC region with their regional and international partners (Japan, Singapore, Australia, the US and the UK) are assessed. Results indicate that there is adequate evidence of economic globalization represented by three international parity variables (real interest differential, uncovered interest differential and relative purchasing power differential) that are likely to hold as a long-run equilibrium condition. The increased cross-public property market correlations and cross-stock market correlations imply that international capital markets have become increasingly linked over the study period. Over the last two decades, there were moderate degrees of co-movements between economic globalization and cross-public property market correlations across the three parity measures. Specifically, the dynamic correlation analysis finds wide differences for different frequencies of cyclical development over the economic cycle. Economic globalization and cross-public property market correlations are moderately linked in the long-run; but in a different manner according to the frequencies and economy-pairs considered, particularly for the short-run frequencies. Moreover, the underlying dynamic relationships between economic globalization and cross-market correlations are different for securitizedproperty and stock markets.

Download Full Article

Download the Full Article PDF

14445921.2014.11104389.pdf 14445921.2014.11104389.pdf (1MB)

Keywords

Conditional Correlations - Cross-Public Property Market Correlation - Dynamic Correlation in Frequency Domain - Economic Globalization - International Parity

References

  • Bardhan, A, Edelstein, R and Tsang, D 2008, ‘Global financial integration and real estate security returns’, Real Estate Economics, Vol. 36, No. 2, pp. 285-311.
  • Bracker, K, Docking, DS and Koch, PD 1999, ‘Economic determinants of evolution in international stock market integration’, Journal of Empirical Finance, Vol. 6, pp. 1-27.
  • Cappiello, L, Robert, E and Sheppard, K 2006, ‘Asymmetric dynamics in the correlation of global equity and bond returns’, Journal of Financial Econometrics, Vol. 4, No. 4, pp. 537-572.
  • Cheng, H and Glascock, J 2005, ‘Dynamic linkages between the Greater China Economic Area stock markets - Mainland China, Hong Kong and Taiwan’, Review of Quantitative Finance and Accounting, Vol. 24, pp. 343-357.
  • Chinn, M and Frankel, J 1995, ‘Who drives real interest rates around the Pacific Rim: the USA or Japan?’, Journal of International Money and Finance, Vol. 14, No. 6, pp. 801-821.
  • Cheung, Y, Chinn, M and Fujii, E 2005, ‘Dimensions of financial integration in Greater China: money markets, banks and policy effects’, International Journal of Economics and Finance, Vol. 10, pp. 117-132.
  • Croux, C, Forni, M and Reichlin, L 2001, ‘A measure of comovement for economic variables: Theory and empirics’, Review of Economics and Statistics, Vol. 83, No. 2, pp. 232-241.
  • Cuestas, J and Harrison, B 2010, ‘Further evidence on real interest rate parity hypothesis in Central and East European countries: unit roots and nonlinearities’, Emerging Markets Finance and Trade, Vol. 46, No. 6, pp. 22-39.
  • Elliot, G, Rothernberg, TJ and Stock, JH 1996, ‘Efficient tests for an autoregressive unit root’, Econometrica, Vol. 64, No. 4, pp. 813-36.
  • Engle, RF 2002, ‘Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models’, Journal of Business and Economic Statistics, Vol. 20, pp. 339-350.
  • Fidrmuc, J and Ivana B 2008, ‘China in the world economy: dynamic correlation analysis of business cycles’, Research paper, No. 2008/02, United Nations University (UNU).
  • Fidrmuc, J. and Korhoen, I 2009, ‘The impact of the global financial crisis on business cycles in Asian emerging economies’, CESIFO Working Paper, No. 2710, Monetary Policy and International Finance (Category 7).
  • Forbes, K and Rigobon, R 2002, ‘No contagion, only interdependence: measuring stock market co-movements’, Journal of Finance, Vol. 57, No. 5, pp. 2223-61.
  • Fountas, S and Wu, J 1999, ‘Testing for real interest rate convergence in European countries’, Scottish Journal of Political Economy, Vol. 46, No. 2, pp. 158-174.
  • Fung, H, Huang, A, Liu, W and Shen, M 2006, ‘The development of the real estate industry in China’, The Chinese Economy, Vol. 39, pp. 84-102.
  • Giliberto, MS 1990, ‘Equity real estate investment trusts and real estate returns’, Journal of Real estate Research, Vol. 5, No. 2, pp. 259-263.
  • Goodwin, B and Grennes, T 1994, ‘Real interest rate equalization and the integration of international financial markets’, Journal of International Money and Finance, Vol. 13, pp. 107-124.
  • Holmes, M and Maghrebi, N 2004, ‘Asian real interest rates, nonlinear dynamics and international parity’, International Review of Economics and Finance, Vol. 13, pp. 387-405.
  • Holmes, M and Wang, P 2008, ‘Real convergence and the EU accession countries: a new perspective on real interest parity’, Journal of Emerging Market Finance, Vol. 7, pp. 215-236.
  • Johansson, A and Ljungwall, J 2009, ‘Spillover effects among the Greater China stock markets’, World Development, Vol. 37, pp. 839-851.
  • Kim, SJ, Moshirian, F and Wu, E 2006, ‘Evolution of international stock and bond market integration: influence of European monetary union’, Journal of Banking and Finance, Vol. 30, pp. 1507-1534.
  • Liow, KH, Ho, KHD, Ibrahim, MF and Chen, Z 2009, ‘Correlation and volatility dynamics in international real estate securities markets’, Journal of Real Estate Finance and Economics, Vol. 39, pp. 202-223.
  • Liow, KH 2012, ‘Co-movements and correlations across Asian Securitized Real Estate and Stock Markets’, Real Estate Economics, Vol. 40, No. 1, pp. 97-129.
  • Liow, KH and Newell, G 2012, ‘Investment dynamics of the Greater China securitized real estate markets and international linkages’, Journal of Real Estate Research, Vol. 34, No. 3, pp. 399-428.
  • Lizieri, C and Satchell, S 1997, ‘Interactions between property and equity markets: an investigation of linkages in the United Kingdom’, Journal of Real Estate Finance and Economics, Vol. 15, No. 1, pp. 11-26.
  • Moosa, I and Bhatti, R 1996, ‘Does real interest parity hold? Empirical evidence from Asia’, Keio Economic Studies, Vol. 33, No. 2, pp. 63-70.
  • Qiao, Z, Chiang, C and Wong, W 2008, ‘Long-run equilibrium, short-term adjustment, and spillover effects across Chinese segmented stock markets and the Hong Kong stock market’, Int. Fin. Markets., Inst. & Money, Vol. 18, pp. 425-437.
  • Tavares, J 2009, ‘Economic globalization and the co-movement of stock returns’, Economic Letters, Vol. 103, pp. 65-67.
  • Triper, F 2002, ‘The dynamic correlation between growth and unemployment’, Economic Bulletin, Vol. 5, No. 4, pp. 1- 9.
  • Wu, J and Chen, S 1998, ‘A re-examination of real interest rate parity’, The Canadian Journal of Economics, Vol. 31, No. 4, pp. 837-851.
  • Zhou, X, Zhang, W and Zhang, J 2012, ‘Volatility spillovers between the Chinese and world equity markets’, Pacific-Basin Finance Journal, Vol. 20, pp. 247-270.