Spatial Linkages in Returns and Volatilities Among U.S. Regional Housing Markets
Real Estate Economics, Vol. 41, No. 1, 29-64.
Posted: 2 Sep 2011 Last revised: 12 Oct 2013
Date Written: September 1, 2011
Abstract
This paper investigates spatial linkages in returns, idiosyncratic risks, and volatilities across nineteen U.S. regional housing markets. Using Case & Shiller housing price indices from 1995 through 2009, we find that interconnections across markets can be “wider” and “stronger” than would normally be expected. They are “wider” because, in addition to geographic closeness, economic proximity is also an important source of influence; they are “stronger” because of the significant contagion effects during the 2007-2009 subprime and financial crises. The increased co-movement and interdependence, especially among more geographically diverse regions with similar economic conditions, may help explain the failure of geographic portfolio diversification strategies.
Keywords: Spatial autocorrelation, volatility spillover effects, contagion, dynamic panel estimation, GARCH process
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