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Housing price dynamics: The impact of stock market sentiment and the spillover effect

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  • Zheng, Yao
  • Osmer, Eric

Abstract

We examine the cross-market impact of U.S. stock market sentiment on U.S. housing prices from January 1991 to December 2014. We find that median housing price returns are typically higher during periods of pessimistic sentiment. We also find, using a VAR-GARCH-in-mean model, that these returns have a differential response to positive and negative sentiment shocks. Additionally, based on a VAR framework developed by Yilmaz and Diebold (2009), we find indications of a strong return spillover effect which is mostly self-contained within the housing market. Finally, using a DCC model, we find that correlations between aggregate stock market sentiment and housing returns are time-varying and rising during economic recessions.

Suggested Citation

  • Zheng, Yao & Osmer, Eric, 2021. "Housing price dynamics: The impact of stock market sentiment and the spillover effect," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 854-867.
    • Handle: RePEc:eee:quaeco:v:80:y:2021:i:c:p:854-867
    DOI: 10.1016/j.qref.2019.02.006
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    Cited by:

    1. Pyo, Dong-Jin, 2022. "Sentiment Shock and Housing Prices: Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 44(4), pages 79-108.
    2. Petar Sorić & Ivana Lolić & Marija Logarušić, 2022. "Economic Sentiment and Aggregate Activity: A Tale of Two European Cycles," Journal of Common Market Studies, Wiley Blackwell, vol. 60(2), pages 445-462, March.

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    More about this item

    Keywords

    Aggregate stock market sentiment; Dynamic conditional correlation; Real estate; Return spillover; Segmentation; VAR-GARCH-M;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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