CO-MOVEMENT BETWEEN STOCK MARKET AND REAL ESTATE MARKET

Abstract

The aim of this study is to examine the Co- movement between Stock Market and Real Estate in Pakistan. This study uses the time series data from January 2011 to June 2020 and assumes that the data is stationary. If the data is not stationary, the first difference (time-to-time periods) will be calculated to make it stationary. This process was created under a unit root test. Johnson's co-integration test is used to capture a long-term relationship between the stock price and the house price index. Johansen Maximum Likelihood (ML) procedure can further be used to determine whether there is a stable long-run relationship between the variables. Johnson's cointegration will be followed by VECM for more detailed analysis (a method of creating a relational model between economic variables in a non-structural way). These are vector autoregressive (VAR) and vector error correction (VEC) models. The volatility dynamics was tested using the GARCH and EGARCH models. The symmetric GARCH pattern cannot capture leverage or asymmetric effects (volatility is higher in a bear market than in a bull market). Exponential GARCH (EGARCH) is designed to eliminate the leverage effect of volatility. The results imply that there is no long-term relationship between stock price and real estate price in Islamabad and Karachi. But co integration exists in Lahore data which demonstrate an overall relation, no long term relationship with a very weak short-run relationship between variables. The economy in Pakistan is still growing and there is no wealth effect or credit price effect in the country where the average price of real estate is high. Real estate is also considered to be consumer goods in Pakistan. However, because of the critical role of the broker the price of real estate is very high. The government should play an important role in regulating the real estate prices, which can help to control speculation in this market.