Do house prices influence stock prices? Empirical investigation from the panel of selected European Union countries

This study examines the long-run and causal relationship between house prices and stock prices in the panel of 22 European Union (EU) countries, covering the monthly data from January 2007 to October 2012. The results show that house prices and stock prices variables are stationary at their first difference, and Pedroni's heterogeneous cointegration test does not confirmed the long-run relationship between the two variables; hence, it is imperative to employed dynamic OLS estimator for robust statistical inference. The results of dynamic OLS (DOLS) reveal that, among 22 countries, there are five countries which show the negative association between house prices and stock prices, while except France and Italy, the remaining 15 countries show the positive relationship between the variables. There is no significant relationship observed in the case of France and Italy. The panel results confirmed the negative impact of house prices on stock prices in the region. The results of panel causality confirmed the stock led house prices in the short-run, while the causality runs in both directions between the variables in the long-run.