Nonlinear tail dependence between the housing and energy markets

David Stenvall,Axel Hedström,Naoyuki Yoshino,Gazi Salah Uddin,Farhad Taghizadeh-Hesary

doi:10.1016/j.eneco.2021.105771

David Stenvall, Axel Hedström + Show 3 more

Open Access

https://doi.org/10.1016/j.eneco.2021.105771

Copy DOI

Abstract

This paper examines the quantile dependence between energy commodities (oil, coal, and natural gas) and the real housing returns of the nine US census divisions for the period 1991–2019. In contrast to the literature on the association between oil and housing markets, we contribute by studying the effect of additional commodities on the housing market returns. We use a cross-quantilogram and quantile regression approach and find regional variation in the impact of energy commodities on housing returns. The effect within the same region varies over the quantile distributions. In general, we observe that all energy commodities are negatively associated with real housing returns. Significant correlations are found more often when the oil and housing returns are in similar quantiles. Coal and natural gas show a stronger relationship with higher quantiles of housing returns. Further, the results for coal and natural gas remains relatively stable after controlling for macroeconomic variables.

Highlights

In recent decades, there have been large price fluctuations in the housing market and global energy markets
We only report the crosscorrelation of lag 1 and 2.6 We start by analyzing the effect of the natural gas price on the national and regional housing markets, continuing with oil and lastly coal
This paper examines the quantile dependence and directional predictability between energy commodities, natural gas, oil, and coal, and the national and regional housing markets in the United States (US) during the period 1991‒2019

Summary

INTRODUCTION

There have been large price fluctuations in the housing market and global energy markets. The theoretical linkages that connect these two markets have been established in previous literature suggesting several different transmission channels While some studies, such as Breitenfeller, Cuaresma, and Mayer (2015), have pointed to the impact of oil prices on house price corrections, exhaustive empirical results regarding their relationship are lacking. In light of the suggested roles of the housing market and energy commodities in recessions, the recent literature investigates the relationship between energy prices and the housing market. This method allows us to study the dependence in arbitrary quantiles of both the dependent and independent variables, allowing us to capture the full return distribution This is important as previous literature has shown a relationship between energy commodities and the housing market in terms of crisis periods, the relationship may be asymmetric.

METHODOLOGY

DATA AND PRELIMINARY ANALYSIS

EMPIRICAL RESULTS

Cross-quantilogram

Panel Quantile Regression

CONCLUSION AND POLICY IMPLICATIONS