This paper adopts the threshold error correction model to examine the asymmetric price transmission between the TOPIX real estate index and Nikkei 225 stock index in Japan. The findings indicate that there exists a bidirectional causal feedback relationship between the real estate and stock price indexes in the short term and an asymmetric price transmission between the real estate and stock price indexes in the long term. When the market imbalance shrinks, the speed with which the markets resume long-term equilibrium is slower whereas when the market imbalance widens, the speed with which the markets resume long-term equilibrium is faster. However, the error correction terms are only significant in the real estate market. This paper makes it easier for investors to predict the performance of one market from that of another and serves as a reference for allocations of investment portfolios. It is recommended that the assets of these two markets should not be included in the same investment portfolios. For government agencies, this paper can be of assistance for policy making in politics and finance.
Relation:
International Research Journal of Finance and Economic, 42, 150-162