Random walks, cointegration, and the transmission of shocks across global real estate and equity markets

James Payne and Anandi Sahu ()

Journal of Economics and Finance, 2004, vol. 28, issue 2, 198-210

Abstract: This article presents tests of the random walk hypothesis for the U.S. and world commercial real estate markets along with the world stock market through utilizing appropriate market indices. The augmented Dickey-Fuller and Phillips-Perron unit root tests and Cochrane variance ratio test find each of these markets to exhibit random walk behavior. In addition, Johansen-Juselius cointegration tests reveal that the three markets are not cointegrated. The vector autoregressive model shows little or no predictive power in explaining the variation in monthly returns. The generalized impulse response functions suggest that shocks stemming from one market are quickly disseminated to the other markets within two months. (JEL G14, G15) Copyright Springer 2004

Date: 2004
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DOI: 10.1007/BF02761611

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