Asymmetric Correlation and Difference between the Volatility of Housing and Stock Price Indexes: Analysis Based on the Threshold Volatility and Cointegration Model

Abstract

This study proposes that asymmetric reactions of the stock and housing markets will result in asymmetric relationship between the two markets. This study uses the Taiwan Weighted Stock Index and housing price index of Taipei city for empirical analysis. The results show that a threshold existed in the equilibrium relationship between the two indexes. Further, we employ the threshold vector error correction model (VECM) proposed by Hansen and Seo (2002) for estimation. The results show that the adjustment behavior of housing price index is indeed more significant when it is revised upward.