INVESTMENT DYNAMICS OF SINGAPORE STOCK AND REAL ESTATE MARKETS

Abstract

This paper examines investment dynamics of six major Singapore asset markets (general stock, property stock, residential, office, retail and industrial) over the last 45 years by focusing on their dynamic correlations, varying spillover-connectedness, Granger causal dependence and selective frequency return connectedness to understand better the changing market relationships among the six markets, as well as the wealth effects between the stock and housing markets. We find that the six asset markets have not become more correlated over time. The 2007–2009 global financial crisis has created the most severe contagion among the markets and was followed by Singapore economic recession. Although these six markets were quite moderately connected in their returns and risk, the return and risk connectedness index measures reached their respective low levels in recent years. The net directional connectedness of the six markets varies in different periods of domestic economic development, external financial crisis and domestic economic recession. Moreover, the housing market leads significant causal interactive roles (linear and nonlinear) over other property and stock markets. On the other hand, the stock market is a strong return transmitter for most of the research periods. The long-term horizon was the most important in contributing to the leadership position in return connectedness of housing market during the Asian financial crisis. Finally, a key message derived from this “long-period” study is that an in-depth understanding of the various investment dynamics is crucial to help maximize mixed portfolio diversification benefits and managing risk in Singapore stock and property markets in the long run.