Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ucd/wpaper/201131.html
   My bibliography  Save this paper

Integration and Contagion in US Housing Markets

Author

Listed:
  • John Cotter

    (School of Business, University College Dublin)

  • Stuart Gabriel

    (Anderson School of Management, University of California - Los Angeles)

  • Richard Roll

    (Anderson School of Management, University of California - Los Angeles)

Abstract
This paper explores integration and contagion among US metropolitan housing markets. The analysis applies Federal Housing Finance Agency (FHFA) house price repeat sales indexes from 384 metropolitan areas to estimate a multi-factor model of U.S. housing market integration. It then identifies statistical jumps in metropolitan house price returns as well as MSA contemporaneous and lagged jump correlations. Finally, the paper evaluates contagion in housing markets via parametric assessment of MSA house price spatial dynamics. A R-squared measure reveals an upward trend in MSA housing market integration over the 2000s to approximately .83 in 2010. Among California MSAs, the trend was especially pronounced, as average integration increased from about .55 in 1997 to close to .95 in 2008! The 2000s bubble period similarly was characterized by elevated incidence of statistical jumps in housing returns. Again, jump incidence and MSA jump correlations were especially high in California. Analysis of contagion among California markets indicates that house price returns in San Francisco often led those of surrounding communities; in contrast, southern California MSA house price returns appeared to move largely in lock step. The high levels of housing market integration evidenced in the analysis suggest limited investor opportunity to diversify away MSA-specific housing risk. Further, results suggest that macro and policy shocks propagate through a large number of MSA housing markets. Research findings are relevant to all market participants, including institutional investors in MBS as well as those who regulate housing, the housing GSEs, mortgage lenders, and related financial institutions.

Suggested Citation

  • John Cotter & Stuart Gabriel & Richard Roll, 2011. "Integration and Contagion in US Housing Markets," Working Papers 201131, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:201131
    as

    Download full text from publisher

    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201131.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    2. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
    3. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2011. "What Segments Equity Markets?," The Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 3841-3890.
    4. Ole E. Barndorff-Nielsen & Neil Shephard, 2006. "Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation," Journal of Financial Econometrics, Oxford University Press, vol. 4(1), pages 1-30.
    5. François Longin & Bruno Solnik, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, April.
    6. Schotman, Peter C. & Zalewska, Anna, 2006. "Non-synchronous trading and testing for market integration in Central European emerging markets," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 462-494, October.
    7. Gikas A. Hardouvelis & Dimitrios Malliaropulos & Richard Priestley, 2006. "EMU and European Stock Market Integration," The Journal of Business, University of Chicago Press, vol. 79(1), pages 365-392, January.
    8. Bekaert, Geert & Harvey, Campbell R, 1995. "Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    9. Chambet, Anthony & Gibson, Rajna, 2008. "Financial integration, economic instability and trade structure in emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 654-675, June.
    10. Karl Case & John Cotter & Stuart Gabriel, 2010. "Housing Risk and Return: Evidence From a Housing Asset-Pricing Model," Working Papers 201005, Geary Institute, University College Dublin.
    11. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
    12. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
    13. Jiang, George J. & Oomen, Roel C.A., 2008. "Testing for jumps when asset prices are observed with noise-a "swap variance" approach," Journal of Econometrics, Elsevier, vol. 144(2), pages 352-370, June.
    14. Carrieri, Francesca & Errunza, Vihang & Hogan, Ked, 2007. "Characterizing World Market Integration through Time," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 915-940, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. I-Chun Tsai, 2019. "Interregional correlations in the US housing market at three price tiers," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(1), pages 1-24, August.
    2. Landier, Augustin & Sraer, David & Thesmar, David, 2017. "Banking integration and house price co-movement," Journal of Financial Economics, Elsevier, vol. 125(1), pages 1-25.
    3. David Genesove & Lu Han, 2012. "A Spatial Look at Housing Boom and Bust Cycles," NBER Chapters, in: Housing and the Financial Crisis, pages 105-141, National Bureau of Economic Research, Inc.
    4. Cheol Eun & Lingling Wang & Tim Zhang, 2022. "House Price Growth Synchronization and Business Cycle Alignment," The Journal of Real Estate Finance and Economics, Springer, vol. 65(4), pages 675-710, November.
    5. Todd Sinai, 2012. "House Price Moments in Boom-Bust Cycles," NBER Chapters, in: Housing and the Financial Crisis, pages 19-68, National Bureau of Economic Research, Inc.
    6. Weida Kuang & Qilin Wang, 2018. "Cultural similarities and housing market linkage: evidence from OECD countries," Frontiers of Business Research in China, Springer, vol. 12(1), pages 1-25, December.
    7. Girum D. Abate & Luc Anselin, 2016. "House price fluctuations and the business cycle dynamics," CREATES Research Papers 2016-06, Department of Economics and Business Economics, Aarhus University.
    8. Fernando Ferreira & Joseph Gyourko, 2012. "Heterogeneity in Neighborhood-Level Price Growth in the United States, 1993-2009," American Economic Review, American Economic Association, vol. 102(3), pages 134-140, May.
    9. Gornall, Will & Strebulaev, Ilya A., 2018. "Financing as a supply chain: The capital structure of banks and borrowers," Journal of Financial Economics, Elsevier, vol. 129(3), pages 510-530.
    10. Alfred Larm Teye & Daniel Felix Ahelegbey, 2017. "Spatial and Temporal House Price Diffusion in the Netherlands: A Bayesian Network Approach," ERES eres2017_337, European Real Estate Society (ERES).
    11. Teye, Alfred Larm & Ahelegbey, Daniel Felix, 2017. "Detecting spatial and temporal house price diffusion in the Netherlands: A Bayesian network approach," Regional Science and Urban Economics, Elsevier, vol. 65(C), pages 56-64.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Cotter & Stuart Gabriel & Richard Roll, 2012. "Can Metropolitan Housing Risk be Diversified? A Cautionary Tale from the Recent Boom and Bust," Papers 1208.0371, arXiv.org.
    2. John Cotter & Stuart Gabriel & Richard Roll, 2015. "Can Housing Risk Be Diversified? A Cautionary Tale from the Housing Boom and Bust," The Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 913-936.
    3. Guesmi, Khaled & Nguyen, Duc Khuong, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," Economic Modelling, Elsevier, vol. 28(6), pages 2517-2527.
    4. Qin, Weiping & Cho, Sungjun & Hyde, Stuart, 2022. "Measuring market integration during crisis periods," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    5. Lucey, Brian M. & Vigne, Samuel A. & Ballester, Laura & Barbopoulos, Leonidas & Brzeszczynski, Janusz & Carchano, Oscar & Dimic, Nebojsa & Fernandez, Viviana & Gogolin, Fabian & González-Urteaga, Ana , 2018. "Future directions in international financial integration research - A crowdsourced perspective," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 35-49.
    6. Qiu, Yue & Ren, Yu & Xie, Tian, 2022. "Global factors and stock market integration," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 526-551.
    7. Giovanna Bua & Carmine Trecroci, 2019. "International equity markets interdependence: bigger shocks or contagion in the 21st century?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(1), pages 43-69, February.
    8. Wagner, Alexander F. & Schrimpf, Paul & Petzev, Ivan, 2015. "Has the Pricing of Stocks Become More Global?," CEPR Discussion Papers 10966, C.E.P.R. Discussion Papers.
    9. Kim, Kyungkeun & Lee, Dongwon, 2020. "Equity market integration and portfolio rebalancing," Journal of Banking & Finance, Elsevier, vol. 113(C).
    10. Cakici, Nusret & Zaremba, Adam, 2023. "Misery on Main Street, victory on Wall Street: Economic discomfort and the cross-section of global stock returns," Journal of Banking & Finance, Elsevier, vol. 149(C).
    11. Menezes, Rui & Dionísio, Andreia & Hassani, Hossein, 2012. "On the globalization of stock markets: An application of Vector Error Correction Model, Mutual Information and Singular Spectrum Analysis to the G7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 369-384.
    12. Kim, In Joon & Kim, So Jung & Yoon, Sun-Joong, 2014. "A dark side of international capital market integration: Domestic investors' view," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 238-256.
    13. Marfatia, Hardik A., 2017. "A fresh look at integration of risks in the international stock markets: A wavelet approach," Review of Financial Economics, Elsevier, vol. 34(C), pages 33-49.
    14. Geert Bekaert & Michael Ehrmann & Marcel Fratzscher & Arnaud Mehl, 2014. "The Global Crisis and Equity Market Contagion," Journal of Finance, American Finance Association, vol. 69(6), pages 2597-2649, December.
    15. Donadelli, Michael & Persha, Lauren, 2014. "Understanding emerging market equity risk premia: Industries, governance and macroeconomic policy uncertainty," Research in International Business and Finance, Elsevier, vol. 30(C), pages 284-309.
    16. Sewraj, Deeya & Gebka, Bartosz & Anderson, Robert D.J., 2018. "Identifying contagion: A unifying approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 224-240.
    17. Billio, M. & Donadelli, M. & Paradiso, A. & Riedel, M., 2017. "Which market integration measure?," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 150-174.
    18. Simon Stevenson, 2016. "Macro-Economic and Financial Determinants of Comovement across Global Real Estate Security Markets," Journal of Real Estate Research, American Real Estate Society, vol. 38(4), pages 595-624.
    19. Imen Bedoui-Belghith & Slaheddine Hallara & Faouzi Jilani, 2023. "Crisis transmission degree measurement under crisis propagation model," SN Business & Economics, Springer, vol. 3(1), pages 1-27, January.
    20. Bekaert, Geert & De Santis, Roberto A., 2021. "Risk and return in international corporate bond markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).

    More about this item

    Keywords

    Integration; correlation; contagion; house price returns;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucd:wpaper:201131. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Geary Tech (email available below). General contact details of provider: https://edirc.repec.org/data/geucdie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.