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Volatility Spillover and International Contagion of Housing Bubbles

Author

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  • Jean-Louis Bago

    (Department of Economics, Laval University, Québec, QC G1V 0A6, Canada)

  • Koffi Akakpo

    (Department of Finance, Insurance and Real Estate, Laval University, Québec, QC G1V 0A6, Canada)

  • Imad Rherrad

    (Department of Finance, Government of Quebec, Québec, QC G1R 5L3, Canada)

  • Ernest Ouédraogo

    (Department of Economics and Management, University Thomas Sankara, Ouagadougou 12 BP 417, Burkina Faso)

Abstract

This paper provides new empirical evidence on housing bubble timing, volatility spillover, and bubble contagion between Japan and its economic partners, namely, the United States, the Eurozone, and the United Kingdom. First, we apply a generalized sup ADF (GSADF) test to the quarterly price-to-rent ratio from 1970Q1 to 2018Q4 to detect explosive behaviors in housing prices. Second, we analyze the volatility spillover in housing prices between Japan and its economic partners using the multivariate time-varying DCC-GARCH model. Third, we assess bubble contagion by estimating a non-parametric model of bubble migration with time-varying coefficients. We document two historical bubble episodes from 1970 to 2018 in Japan’s housing market. Moreover, we find evidence of volatility spillover effects and bubble contagion between Japan’s real estate market and its most important economic partners during several periods. In this context of market integration, countries need to develop coordinated real estate policies to address the risk of global real estate bubbles.

Suggested Citation

  • Jean-Louis Bago & Koffi Akakpo & Imad Rherrad & Ernest Ouédraogo, 2021. "Volatility Spillover and International Contagion of Housing Bubbles," JRFM, MDPI, vol. 14(7), pages 1-14, June.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:7:p:287-:d:580531
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    More about this item

    Keywords

    bubble; contagion; real estate; Japan; DCC-GARCH;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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