Evidence of speculative bubbles and regime switch in real estate market and crude oil price: Insight from Saudi Arabia

Andrew Alola

International Journal of Finance & Economics, 2021, vol. 26, issue 3, 3473-3483

Abstract: The sector performances of many economies especially the oil‐producing ones, are consistently linked with the volatility of the international crude oil prices. Considering the significance of the international crude oil price to the economy of the Saudi Arabia, the current study investigates the dynamics of the crude oil price and the country's real estate market. This is achieved by investigating the evidence of both speculative bubbles and regime switching in the crude oil and real estate market from October 3, 2005, to March 29, 2018. As such, the Supremum Augmented Dickey–Fuller (SADF) and Markov switching regression model were employed. Although there is no significant evidence of speculative bubbles in the Saudi Arabia's real estate market, the result reveals statistical significant evidence of price bubbles in the Brent crude oil price especially between the period of 2007 to 2008, which coincides with the Global Financial Crisis period. However, the Markov switching investigation reveal that there is evidence of significant and positive impact of crude oil price return on the real estate market in the regimes. Importantly, empirical evidence shows that the impact is higher in Regime 2 even as the global factor (proxy volatility index) is evidently significant. Although the regimes are persistent, the expected regime duration of the stable regime is of the higher quarter. This investigation is statistically significant and robust, especially when Organization of the Petroleum Exporting Countries (OPEC) price of crude oil is used in lieu of the European Brent price. The estimation result encourages more strict energy policies that tackle the Saudi Arabia's energy and the real estate challenges.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1002/ijfe.1971

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:26:y:2021:i:3:p:3473-3483

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().