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Would Some Model Please Give Me Some Hints? An Empirical Investigation On Monetary Policy And Asset Return Dynamics

Author

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  • Charles Leung
  • Kuang Liang Chang
  • Nan-Kuang Chen

Abstract

This paper empirically investigates the forecasting performances for the housing and stock returns of a series of SVAR models, including various combinations of the federal funds rate, term spread, external finance premium, TED spread, and GDP. Using US data 1975Q2-2008Q3, we find that, for both the in-sample-fitting and out-of-sample forecasting, the single-regime version always underperforms the regime-switching counterpart. The term spread and TED spread outperform other variables in predicting the stock returns. We also find preliminary evidence that the housing return may help predicting the stock return since 2006. None of the models we examine predict the 2008 downfall of housing returns.

Suggested Citation

  • Charles Leung & Kuang Liang Chang & Nan-Kuang Chen, 2010. "Would Some Model Please Give Me Some Hints? An Empirical Investigation On Monetary Policy And Asset Return Dynamics," ERES eres2010_295, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2010_295
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    Citations

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    Cited by:

    1. Yi Jin & Charles K.Y. Leung & Zhixiong Zeng, 2012. "Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(1), pages 167-195, March.
    2. Chang, Kuang-Liang & Chen, Nan-Kuang & Leung, Charles Ka Yui, 2012. "The dynamics of housing returns in Singapore: How important are the international transmission mechanisms?," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 516-530.
    3. Kuang-Liang Chang & Nan-Kuang Chen & Charles Ka Yui Leung, 2013. "In the Shadow of the U nited S tates: The International Transmission Effect of Asset Returns," Pacific Economic Review, Wiley Blackwell, vol. 18(1), pages 1-40, February.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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