Volatility Clustering, Risk-Return Relationship and Asymmetric Adjustment in Canadian Housing Markets

Posted: 6 Jan 2013 Last revised: 22 Feb 2015

See all articles by Pin-te Lin

Pin-te Lin

Australian National University (ANU)

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Date Written: January 6, 2013

Abstract

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

Lin, Pin-te and Fuerst, Franz, Volatility Clustering, Risk-Return Relationship and Asymmetric Adjustment in Canadian Housing Markets (January 6, 2013). Lin, P. and Fuerst, F. 2014. Volatility Clustering, Risk-Return Relationship, and Asymmetric Adjustment in the Canadian Housing Market. Journal of Real Estate Portfolio Management 20(1): 37–46. , Available at SSRN: https://ssrn.com/abstract=2197098 or http://dx.doi.org/10.2139/ssrn.2197098

Pin-te Lin (Contact Author)

Australian National University (ANU) ( email )

Franz Fuerst

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

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