Using Threshold Error-Correction Model to Investigate Asymmetric Price Transmissions between the Real Estate and Stock Markets in Taiwan

Abstract

In this study, using a threshold error-correction model, we investigate price transmissions between the real estate and stock markets in Taiwan over the 1986Q1 to 2003Q2 period. The results from Granger-Causality tests based on corresponding threshold error-correction model (TECM) clearly point to unidirectional causality running from the real estate market to stock market in the short run. Furthermore, we find asymmetric price transmissions between these two markets in the long run. These findings ought to be made readily available to individual investors and financial institutions holding long-term investment portfolios in these two asset markets for their likely implications today.