CYCLICAL RELATIONSHIP BETWEEN PROPERTY STOCK PRICE AND THE MACROECONOMIC CYCLES IN THE ASIA PACIFIC REGION

Abstract

This study first examines cross-border cyclical relationship between property stock prices in Singapore, Hong Kong, Malaysia, Japan and UK. Next, the research is extended to examine cyclical regularities between local property stock returns and their macroeconomic variables. The strategy is to use two techniques in different domains to derive a holistic view of the cyclical relationships between these variables. Collectively, evidence from this study indicates that the cyclical characteristics of each country's property stock price are unique and the macroeconomic cycles that appear to correlate with the property stock price cycles differs from different countries. This study recommends that there are only limited diversification benefits in investing in the property stock market of these five countries. In addition, the property stock prices in emerging markets tend to be more closely related as compared to the developed markets. On the other hand, for the Asian and European developed markets, the GDP growth cycle appears to lead the property stock cycle in the medium term. Moreover, the actual inflation cycles in the developed markets tend to lead property stock price cycles in the medium frequency bands while the unexpected inflation cycles in almost all markets appears to lead property stock price cycles by 1-3 months in the moderate frequency bands. Hence, inflation cycles are considered good indicators of medium-term property stock prices. No other macroeconomic variables can be said to clearly lead the property stock price cycles in all countries. Thus, structural models of property stock price determination which uses all these economic variables as a basis of measurement may be flawed.