Volatility Clustering, Risk-Return Relationship and Asymmetric Adjustment in Canadian Housing Markets
Posted: 6 Jan 2013 Last revised: 22 Feb 2015
Date Written: January 6, 2013
This study applies a Lagrange Multiplier (LM) test for the AutoRegressive Conditional Heteroskedasticity (ARCH) effects and an Exponential Generalized Autoregressive Conditional Heteroskedasticity-in-Mean (EGARCH-M) model to assess whether regional house prices in Canada exhibit financial characteristics similar to stock indices. Volatility clustering, positive risk-return relationships, and leverage effects are empirically shown to exist in the majority of provincial housing markets of Canada. These volatility behaviors, which reflect regional idiosyncrasies, are further found to differ across provinces. More densely populated provinces exhibit stronger volatility clustering of house prices. The existence of these volatility patterns similar to stock indices has important implications ranging from proper portfolio management to government policy.
Keywords: EGARCH-M, Canada, Volatility clustering, Risk-return, Leverage
JEL Classification: C32, O51, R30
Suggested Citation: Suggested Citation