Asymmetric Wealth Effect between US Stock Markets and US Housing Market and European Stock Markets: Evidences from TAR and MTAR

Pedro Coelho, Luís Gomes () and Patrícia Ramos
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Pedro Coelho: ISCAP, Polytechnic of Porto, 4465-004 S. Mamede de Infesta, Portugal
Luís Gomes: CEOS.PP, ISCAP, Polytechnic of Porto, 4465-004 S. Mamede de Infesta, Portugal
Patrícia Ramos: CEOS.PP, ISCAP, Polytechnic of Porto and INESC TEC, 4465-004 S. Mamede de Infesta, Portugal

Risks, 2023, vol. 11, issue 7, 1-14

Abstract: Evidence of the asymmetric wealth effect has important implications for investors and continues to merit research attention, not least because much of the evidence based on linear models has been refuted. Indeed, stock and house prices are influenced by economic activity and react non-linearly to positive/negative shocks. This problem justifies our research. The objective of this study is to examine evidence of cointegrations between the US housing and stock markets and between the US and European stock markets, given the international relevance of these exchanges. Using data from 1989:Q1 to 2020:Q2, the Threshold Autoregression model as well as the Momentum Threshold Autoregression model were calculated by combining the US Freddie, DJIA, and SPX indices and the European STOXX and FTSE indices. The results suggest a long-term equilibrium relationship with asymmetric adjustments between the housing market and the US stock markets, as well as between the DJIA, SPX, and FTSE indices. Moreover, the wealth effect is stronger when stock prices outperform house prices above an estimated threshold. This empirical evidence is useful to portfolio managers in their search for non-perfectly related markets that allow investment diversification and control risk exposure across different assets.

Keywords: threshold autoregression; momentum threshold autoregression; cointegration; asymmetric error correction; risk; financial markets (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:11:y:2023:i:7:p:124-:d:1190209

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