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Title: Long-term co-memories and short-run adjustment: Securitized real estate and stock markets
Authors: Liow, K.H. 
Yang, H.
Keywords: Fractional cointegration
Fractional integrated vector error correction model
Long-term co-memories
Securitized real estate market
Stock market
Issue Date: 2005
Citation: Liow, K.H., Yang, H. (2005). Long-term co-memories and short-run adjustment: Securitized real estate and stock markets. Journal of Real Estate Finance and Economics 31 (3) : 283-300. ScholarBank@NUS Repository.
Abstract: This study considers whether securitized real estate and stock markets have long-term co-memories and implications for short-term adjustment. Our results offer reasonable support for fractional cointegration (characteristic of a long memory process) between securitized real estate price, stock market price and key macroeconomic factors in some economies. The implication is that where fractional cointegration prevails, securitized real estate and common stocks are substitutable assets over the long run and these assets may not be held together in a portfolio for diversification purpose. Furthermore, short-run analysis indicates that the speed of adjustment towards the long-run equilibrium is faster for fractional integrated vector error correction model (FIVECM) than VECM as the former incorporates a long history of past cointegration residuals. Additional comparisons of the two models' forecasting accuracy show that incorporating fractional cointegration in a VECM model improves the forecasting performance over conventional VECM models. Our results reinforce the notion that cointegration, fractional cointegration and short-run adjustment dynamics are important in understanding market integration/segmentation. © 2005 Springer Science + Business Media, Inc.
Source Title: Journal of Real Estate Finance and Economics
ISSN: 08955638
DOI: 10.1007/s11146-005-2790-6
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