INTEGRATION BETWEEN PROPERTY STOCK AND PROPERTY MARKETS: EVIDENCE FROM THE GARCH-M MODELS

Abstract

The property stock market has often been regarded as a proxy of the real property market. Hence, the issue of whether the two markets are integrated is an important one, there exists a long term relationship between them for them to be regarded as proxy for each other. Studies have been conducted on this issue of integration between the property stock and property markets in Singapore based on their returns but no consensus has been reached yet. This study therefore uses an alternative approach to examine the issue of integration between property stock and property market in Singapore by looking at the relationship between their time-varying volatilities. Their conditional market volatilities were first estimated using the GARCH-M process. Then the estimated market volatilities of property stocks are used as exogeneous variable in their respective GARCH type specifications to test if they have any incremental explanatory power on the property market. A similar test is done using the market volatilities of real property on the property stock market. We have found that only property stock market is incrementally influenced by the current real estate market information. Hence, we conclude that the property stock and real property markets are partially or uni-directionally integrated.