Booms, Busts and Co-movements: Dynamic Interactions among Property, Equity and Credit Markets in Malaysia
Main Article Content
Abstract
This study investigates the complex relationships between property, equity and credit markets in Malaysia from 1994 to 2024. Using wavelet coherence analysis, we examine the co-movements and causal relationships between these markets, considering both time and frequency domains. Preliminary findings, based on conventional approaches, indicated a bi-directional causality between property and equity markets. The comprehensive wavelet analysis revealed significant correlations between property and equity markets, particularly during specific periods such as 2000–2012 and 2020–2024. Furthermore, the results showed that the magnitude and trend of these associations varied across time and frequency intervals, highlighting the possibility of varying diversification advantages for investors with different investment timeframes. Partial wavelet coherence analysis highlights the markets’ sensitivity to basic economic fundamentals during pandemics and crises. Our findings have significant implications for both short-term traders and long-term investors, emphasising the important role of the wealth effect and credit-price effect in shaping equity-property relationships.
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Abuzayed, B., Al-Fayoumi, N., & Bouri, E. (2020). Co-movement across European stock and real estate markets. International Review of Economics & Finance, 69, 189–208. https://doi.org/10.1016/j.iref.2020.05.010
Agnello, L., & Schuknecht, L. (2011). Booms and busts in housing markets: Determinants and implications. Journal of Housing Economics, 20(3), 171–190. https://doi.org/10.1016/j.jhe.2011.04.001
Akin, O., Montalvo, J. G., García Villar, J., Peydró, J. -L., & Raya, J. M. (2014). The real estate and credit bubble: Evidence from Spain. SERIEs, 5(2), 223–243. https://doi.org/10.1007/s13209-014-0115-9
Alessi, L., & Detken, C. (2018). Identifying excessive credit growth and leverage. Journal of Financial Stability, 35, 215–225. https://doi.org/10.1016/j.jfs.2017.06.005
Ambrose, B. W., Ancel, E., & Griffiths, M. D. (1992). The fractal structure of real estate investment trust returns: The search for evidence of market segmentation and nonlinear dependency. Real Estate Economics, 20(1), 25–54. https://doi.org/10.1111/1540-6229.00571
Anundsen, A. K., Gerdrup, K., Hansen, F., & Kragh-Sørensen, K. (2016). Bubbles and crises: The role of house prices and credit. Journal of Applied Econometrics, 31(7), 1291–1311. https://doi.org/10.1002/jae.2503
Arestis, P., & González, A. R. (2014). The housing market-bank credit relationship: Some thoughts on its causality. Panoeconomicus, 61(2), 145–160. https://doi.org/10.2298/PAN1402145A
Aye, G., Balcilar, M., & Gupta, R. (2013). Long- and short-run relationships between house and stock prices in South Africa: A nonparametric approach. Journal of Housing Research, 22(2), 203–219. https://doi.org/10.1080/10835547.2013.12092078
Banti, C., & Phylaktis, K. (2019). Global liquidity, house prices and policy responses. Journal of Financial Stability, 43, 79–96. https://doi.org/10.1016/j.jfs.2019.05.015
Barros, C. P., Gil-Alana, L. A., & Payne, J. E. (2012). Comovements among U.S. state housing prices: Evidence from fractional cointegration. Economic Modelling, 29(3), 936–942. https://doi.org/10.1016/j.econmod.2012.02.006
Bian, X., Lin, Z., & Liu, Y. (2018). House price, loan-to-value ratio and credit risk. Journal of Banking & Finance, 92, 1–12. https://doi.org/10.1016/j.jbankfin.2018.04.006
Bouchouicha, R. (2013). Dynamics of real estate markets and stock markets in the US and the UK. Inworking paper series.
Buyukkarabacak, B., & Valev, N. T. (2010). The role of household and business credit in banking crises. Journal of Banking & Finance, 34(6), 1247–1256. https://doi.org/10.1016/j.jbankfin.2009.11.022
Case, K. E., Shiller, R. J., & Thompson, A. (2014). What have they been thinking? Home buyer behavior in hot and cold markets. SSRN. https://doi.org/10.2139/ssrn.2580196
Cerutti, E., Dagher, J., & Dell’Ariccia, G. (2017). Housing finance and real-estate booms: A cross-country perspective. Journal of Housing Economics, 38, 1–13. https://doi.org/10.1016/j.jhe.2017.02.001
Chaudhury, S., Nanda, N., & Tyagi, B. (2020). Impact of FDI on economic growth in South Asia: Does nature of FDI matters? Review of Market Integration,12(1–2), 51–69. https://doi.org/10.1177/0974929220969679
Chen, N. K. (2001). Asset price fluctuations in Taiwan: Evidence from stock and real estate prices 1973 to 1992. Journal of Asian Economics, 12(2), 215–232. https://doi.org/10.1016/S1049-0078(01)00083-5
Choi, C., & Park, K. (2018). Financial system and housing price. Emerging Markets Finance and Trade, 54(2), 328–335. https://doi.org/10.1080/1540496X.2017.1344832
Cohen, J. P. (2010). The broader effects of transportation infrastructure: Spatial econometrics and productivity approaches. Transportation Research Part E: Logistics and Transportation Review, 46(3), 317–326. https://doi.org/10.1016/j.tre.2009.11.003
Costa, A., da Silva, C., & Matos, P. (2022). The Brazilian financial market reaction to COVID-19: A wavelet analysis. International Review of Economics & Finance, 82, 13–29. https://doi.org/10.1016/j.iref.2022.05.010
Deng, Y., Girardin, E., Joyeux, R., & Shi, S. (2017). Did bubbles migrate from the stock to the housing market in China between 2005 and 2010? Pacific Economic Review, 22(3), 276–292. https://doi.org/10.1111/1468-0106.12230
Dietz, R. D., & Haurin, D. R. (2003). The social and private micro-level consequences of homeownership. Journal of Urban Economics, 54(3), 401–450. https://doi.org/10.1016/S0094-1190(03)00080-9
Eichholtz, P. M. A., & Hartzell, D. J. (1996). Property shares, appraisals and the stock market: An international perspective. The Journal of Real Estate Finance and Economics, 12(2), 163–178. https://doi.org/10.1007/BF00132265
Fan, Y., Yang, Z., & Yavas, A. (2019). Understanding real estate price dynamics: The case of housing prices in five major cities of China. Journal of Housing Economics, 43, 37–55. https://doi.org/10.1016/j.jhe.2018.09.003
Fereidouni, H. G., Al-Mulali, U., Lee, J. Y. M., & Mohammed, A. H. (2016). Dynamic relationship between house prices in Malaysia’s major economic regions and Singapore house prices. Regional Studies, 50(4), 657–670. https://doi.org/10.1080/00343404.2014.928408
Floro, D. (2019). Testing the predictive ability of house price bubbles for macroeconomic performance: A meta-analytic approach. International Review of Financial Analysis, 62, 164–181. https://doi.org/10.1016/j.irfa.2018.11.019
Geltner, D. (1990). Return risk and cash flow risk with long-term riskless leases in commercial real estate. Real Estate Economics, 18(4), 377–402. https://doi.org/10.1111/1540-6229.00529
Grinsted, A., Moore, J. C., & Jevrejeva, S. (2004). Application of the cross wavelet transform and wavelet coherence to geophysical time series. Nonlinear Processes
in Geophysics, 11(5/6), 561–566. https://doi.org/10.5194/npg-11-561-2004
Guren, A. M., McKay, A., Nakamura, E., & Steinsson, J. (2021). Housing wealth effects: The long view. The Review of Economic Studies, 88(2), 669–707. https://doi.org/10.1093/restud/rdaa018
Herring, R., & Wachter, S. (2003). Bubbles in real estate markets. Asset Price Bubbles: The Implications for Monetary, Regulatory, and International Policies, 217(6), 217–230. https://doi.org/10.7551/mitpress/1459.003.0020
Hoesli, M. (2020). An investigation of the synchronization in global house prices. Journal of European Real Estate Research, 13(1), 17–27. https://doi.org/10.1108/JERER-12-2019-0050
Hui, H. C. (2010). House price diffusions across three urban areas in Malaysia. International Journal of Housing Markets and Analysis, 3(4), 369–379. https://doi.org/10.1108/17538271011080664
Ibbotson, R. G., & Siegel, L. B. (1984). Real estate returns: A comparison with other investments. Real Estate Economics, 12(3), 219–242. https://doi.org/10.1111/1540-6229.00320
Jiang, Y., Yu, M., & Hashmi, S. M. (2017). The financial crisis and co-movement of global stock markets-A case of six major economies. Sustainability, 9(2), 260. https://doi.org/10.3390/su9020260
Jorda, O., Schularick, M., & Taylor, A. M. (2015). Leveraged bubbles. Journal of Monetary Economics, 76, S1–S20. https://doi.org/10.1016/j.jmoneco.2015.08.005
Jorion, P., & Schwartz, E. (1986). Integration vs. segmentation in the Canadian stock market. The Journal of Finance, 41(3), 603–614. https://doi.org/10.1111/j.1540-6261.1986.tb04521.x
Kapopoulos, P., & Siokis, F. (2005). Stock and real estate prices in Greece: Wealth versus ‘credit-price’ effect. Applied Economics Letters, 12(2), 125–128. https://doi.org/10.1080/1350485042000307107
Karamti, C., & Belhassine, O. (2022). COVID-19 pandemic waves and global financial markets: Evidence from wavelet coherence analysis. Finance Research Letters, 45, 102136. https://doi.org/10.1016/j.frl.2021.102136
Kartal, M. T., Kılıç Depren, S., & Depren, Ö. (2023). Housing prices in emerging countries during COVID-19: Evidence from Turkey. International Journal of Housing Markets and Analysis, 16(3), 598–615. https://doi.org/10.1108/IJHMA-07-2021-0083
Kim, K. -H. (2004). Housing and the Korean economy. Journal of Housing Economics, 13(4), 321–341. https://doi.org/10.1016/j.jhe.2004.09.001
Kok, S. H., Ismail, N. W., & Lee, C. (2018). The sources of house price changes in Malaysia. International Journal of Housing Markets and Analysis, 11(2), 335–355. https://doi.org/10.1108/IJHMA-04-2017-0039
Korkmaz, Ö., Erer, E., & Erer, D. (2016). The factors affecting credit bubbles: The case of Turkey. Financial Studies, 20(1), 37–53.
Kristoufek, L. (2013). BitCoin meets Google Trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era. Scientific Reports, 3(1), 3415. https://doi.org/10.1038/srep03415
Lambertini, L., Mendicino, C., & Punzi, M. T. (2013). Expectation-driven cycles in the housing market: Evidence from survey data. Journal of Financial Stability, 9(4), 518–529. https://doi.org/10.1016/j.jfs.2013.07.006
Lean, H. H., & Smyth, R. (2013). Regional house prices and the ripple effect in Malaysia. Urban Studies, 50(5), 895-922. https://doi.org/10.1177/0042098012459582
Lean, H. H., & Smyth, R. (2014). Dynamic interaction between house prices and stock prices in Malaysia. International Journal of Strategic Property Management, 18(2), 163–177. https://doi.org/10.3846/1648715X.2014.925006
Lee, S. J., Posenau, K. E., & Stebunovs, V. (2020). The anatomy of financial vulnerabilities and banking crises. Journal of Banking & Finance, 112, 105334. https://doi.org/10.1016/j.jbankfin.2018.04.013
Liang, Z., Messner, S. F., Huang, Y., & Chen, C. (2016). Confronting the challenges of urbanization in China: Insights from social science perspectives. Routledge. https://doi.org/10.4324/9781315558547
Lin, T. C., & Lin, Z. H. (2011). Are stock and real estate markets integrated? An empirical study of six Asian economies. Pacific-Basin Finance Journal, 19(5), 571–585. https://doi.org/10.1016/j.pacfin.2011.05.001
Liow, K. H. (2006). Dynamic relationship between stock and property markets. Applied Financial Economics, 16(5), 371–376. https://doi.org/10.1080/09603100500390885
Liow, K. H. (2012). Co-movements and correlations across Asian securitized real estate and stock markets. Real Estate Economics, 40(1), 97–129. https://doi.org/10.1111/j.1540-6229.2011.00314.x
Liow, K. H., & Yang, H. (2005). Long-term co-memories and short-run adjustment: Securitized real estate and stock markets. The Journal of Real Estate Finance and Economics, 31(3), 283–300. https://doi.org/10.1007/s11146-005-2790-6
Liu, C. H., Hartzell, D. J., Greig, W., & Grissom, T. V. (1990). The integration of the real estate market and the stock market: Some preliminary evidence. The Journal of Real Estate Finance and Economics, 3(3), 261–282. https://doi.org/10.1007/BF00216190
Logan, J. R., & Molotch, H. (2007). Urban fortunes: The political economy of place, with a new preface. University of California Press. https://doi.org/10.1525/9780520934573
Loh, L. (2013). Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis. Research in International Business and Finance, 29, 1–13. https://doi.org/10.1016/j.ribaf.2013.01.001
Ma, L., & Liu, C. (2013). Ripple effects of house prices: considering spatial correlations in geography and demography. International Journal of Housing Markets and Analysis, 6(3), 284–299. https://doi.org/10.1108/IJHMA-05-2012-0020
Majid, R., Said, R., Ab Rahim, N., Saleh, A. F. A., & Suryanto, T. (2023). Modelling housing demand factors for affordable units in Malaysia. International Journal of Sustainable Construction Engineering and Technology, 14(5), 267–277. https://doi.org/10.30880/ijscet.2023.14.05.021
Markowitz, H. M. (1957). A simplex method for the portfolio selection problem. Cowles Foundation Discussion Papers. 244.
McMillan, D. G. (2012). Long-run stock price-house price relation: evidence from an ESTR model. SSRN. https://doi.org/10.2139/ssrn.1914424
Meen, G. (1996). Spatial aggregation, spatial dependence and predictability in the UK housing market. Housing Studies, 11(3), 345–372. https://doi.org/10.1080/02673039608720862
Meen, G. (1999). Regional house prices and the ripple effect: A new interpretation. Housing Studies, 14(6), 733–753. https://doi.org/10.1080/02673039982524
Myer, F., & Webb, J. (1993). Return properties of equity REITs, common stocks, and commercial real estate: A comparison. Journal of Real Estate Research, 8(1), 87–106. https://doi.org/10.1080/10835547.1993.12090695
Ngoc, N. M. (2023). The relevance of factors affecting real estate investment decisions for post pandemic time. International Journal of Business and Globalisation, 1(1), 1–15. https://doi.org/10.1504/IJBG.2025.10055966
Nguyen, T. T. H., Balli, F., Balli, H. O., & Syed, I. (2022). Direct real estate, securitized real estate, and equity market dynamic connectedness. Applied Economics, 54(23), 2658–2677. https://doi.org/10.1080/00036846.2021.1994125
Okunev, J., Wilson, P., & Zurbruegg, R. (2000). The causal relationship between real estate and stock markets. The Journal of Real Estate Finance and Economics, 21(3), 251–261. https://doi.org/10.1023/A:1012051719424
Okunev, J., & Wilson, P. J. (1997). Using nonlinear tests to examine integration between real estate and stock markets. Real Estate Economics, 25(3), 487–503. https://doi.org/10.1111/1540-6229.00724
Pillaiyan, S. (2015). Macroeconomic drivers of house prices in Malaysia. Canadian Social Science, 11(9), 119–130.
Quan, D. C., & Titman, S. (1999). Do real estate prices and stock prices move together? An international analysis. Real Estate Economics, 27(2), 183–207. https://doi.org/10.1111/1540-6229.00771
Rahman, M. M. (2010). The Australian housing market: Understanding the causes and effects of rising prices. Policy Studies, 31(5), 577–590. https://doi.org/10.1080/01442872.2010.497261
Rangel, G. J., Ng, J. W. J., Murugasu, T. T., & Poon, W. C. (2019). Measuring Malaysian housing affordability: The lifetime income approach. International Journal of Housing Markets and Analysis, 12(5), 966–984. https://doi.org/10.1108/IJHMA-02-2019-0023
Reinhart, C. M., & Rogoff, K. S. (2013). Banking crises: An equal opportunity menace. Journal of Banking & Finance, 37(11), 4557–4573. https://doi.org/10.1016/j.jbankfin.2013.03.005
Roy, S., & Kemme, D. M. (2012). Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now. International Review of Economics & Finance, 24, 270–294. https://doi.org/10.1016/j.iref.2012.04.001
Rua, A. (2010). Measuring comovement in the time-frequency space. Journal of Macroeconomics, 32(2), 685–691. https://doi.org/10.1016/j.jmacro.2009.12.005
Rua, A., & Nunes, L. C. (2009). International comovement of stock market returns: A wavelet analysis. Journal of Empirical Finance, 16(4), 632–639. https://doi.org/10.1016/j.jempfin.2009.02.002
Rubio, M., & Carrasco-Gallego, J. A. (2014). Macroprudential and monetary policies: Implications for financial stability and welfare. Journal of Banking & Finance, 49, 326–336. https://doi.org/10.1016/j.jbankfin.2014.02.012
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review, 102(2), 1029–1061. https://doi.org/10.1257/aer.102.2.1029
Shirvani, H., Mirshab, B., & Delcoure, N. N. (2012). Stock prices, home prices, and private consumption in the US: Some robust bilateral causality tests. Modern Economy, 3, 145–149. https://doi.org/10.4236/me.2012.32020
Sleziak, P., Hlavčová, K., & Szolgay, J. (2015). Advantages of a time series analysis using wavelet transform as compared with a Fourier analysis. Slovak Journal of Civil Engineering, 23(2), 30–36. https://doi.org/10.1515/sjce-2015-0010
Sornette, D., & Woodard, R. (2010). Financial bubbles, real estate bubbles, derivative bubbles, and the financial and economic crisis. Paper presented at the Econophysics Approaches to Large-Scale Business Data and Financial Crisis, Tokyo. https://doi.org/10.2139/ssrn.1407608
Su, C. W., Chang, H. L., & Zhu, M. N. (2011). A non-linear model of causality between the stock and real estate markets of European countries. Journal for Economic Forecasting, 1, 41–53.
Teye, A. L., Knoppel, M., de Haan, J., & Elsinga, M. G. (2017). Amsterdam house price ripple effects in The Netherlands. Journal of European Real Estate Research, 10(3), 331–345. https://doi.org/10.1108/JERER-11-2016-0041
Thaker, H., & Ariff, M. (2020). Supply-side drivers of residential price in Malaysia: A qualitative analysis from developers’ perspectives. Property Management, 38(4), 543–564. https://doi.org/10.1108/PM-10-2019-0056
Thaker, H., Ariff, M., & Subramaniam, N. R. (2021). Residential property market in Malaysia: An analysis of price drivers and co-movements. Property Management, 39(1), 107–138. https://doi.org/10.1108/PM-10-2019-0064
Torrence, C., & Webster, P. J. (1999). Interdecadal changes in the ENSO-monsoon system. Journal of Climate, 12(8), 2679–2690. https://doi.org/10.1175/1520-0442(1999)012<2679:ICITEM>2.0.CO;2
Trofimov, I., Md Aris, N., & Xuan, D. C. D (2018). Macroeconomic and demographic determinants of residential property prices in Malaysia. Zagreb International Review of Economics & Business, 21(2), 71–96. https://doi.org/10.2478/zireb-2018-0015
Tsai, I. C., Lee, C.-F., & Chiang, M.-C. (2012). The asymmetric wealth effect in the US housing and stock markets: Evidence from the threshold cointegration model. The Journal of Real Estate Finance and Economics, 45(4), 1005–1020. https://doi.org/10.1007/s11146-011-9304-5
Umar, Z., & Olson, D. (2022). Strategic asset allocation and the demand for real estate: International evidence. Empirical Economics, 62(5), 2461–2513. https://doi.org/10.1007/s00181-021-02090-8
Virtanen, T., Tölö, E., Virén, M., & Taipalus, K. (2018). Can bubble theory foresee banking crises? Journal of Financial Stability, 36, 66–81. https://doi.org/10.1016/j.jfs.2018.02.008
Vogiazas, S., & Alexiou, C. (2017). Determinants of housing prices and bubble detection: Evidence from seven advanced economies. Atlantic Economic Journal, 45(1), 119–131. https://doi.org/10.1007/s11293-017-9531-0
Wilson, P., & Okunev, J. (1999). Long-term dependencies and long run non-periodic co-cycles: Real estate and stock markets. Journal of Real Estate Research, 18(2), 257–278. https://doi.org/10.1080/10835547.1999.12090995
Wilson, P., Okunev, J., & Ta, G. (1996). Are real estate and securities markets integrated? Some Australian evidence. Journal of Property Valuation and Investment, 14(5), 7–24. https://doi.org/10.1108/14635789610154253
Worzala, E. M. (1992). International direct real estate investments as alternative portfolio assets for institutional investors: An evaluation. The University of Wisconsin-Madison.
Wu, T. P., Wu, H. C., Chu, C. C., & Deng, R. (2021). Tourism and house prices: A wavelet analysis. Journal of China Tourism Research, 17(1), 1–16. https://doi.org/10.1080/19388160.2019.1683111
Xu, X., & Zhang, Y. (2023). Retail property price index forecasting through neural networks. Journal of Real Estate Portfolio Management, 29(1), 1–28. https://doi.org/10.1080/10835547.2022.2110668
Zhou, J. (2010). Comovement of international real estate securities returns: a wavelet analysis. Journal of Property Research, 27(4), 357–373. https://doi.org/10.1080/09599916.2010.517853
Zulkarnain, S. H., & Nawi, A. S. (2024). The relationship between macroeconomic variables on residential property price: Case study in Malaysia before and during COVID-19. International Journal of Housing Markets and Analysis, 17(3), 702–725. https://doi.org/10.1108/IJHMA-01-2022-0013