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Time Varying Correlation between Stock Market Returns and Real Estate Returns in Iran

Farshchi, Mohammad Hossein | 2021

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 55497 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Keshavarz Haddad, Gholamreza
  7. Abstract:
  8. In economies with high inflation rates, investors are concerned about their purchasing power and assets’ value. Traders are interested to choose optimal portfolios in terms of risk and return. In recent years, the Iranian stock market and real estate experienced a quiet long period of boom with high rates of return. In this study, we estimate and analyze the equi-correlation between the returns in the markets. For this purpose, we use the monthly data of real estate prices in Tehran and the Tehran Stock Exchange Index for a twenty-four-year period, applying the DCC technique. Our results reveal that the long-term correlation between these two markets is not strong, leading us to suggest them as diversification tools. Also, the conditional and unconditional correlation between these two classes of assets fluctuate notably over time. Thus, active portfolio management and weighing the assets dynamically improve the risk-return outcome. Our hypothesis asserts that exchange rate volatility is the most determinant factor of the correlation. Therefore, we divided the observations into nine sub-periods, and we illustrate that over the periods of the exchange rate jump, the correlation gets stronger, and hence, diversification opportunities fade. Conversely, a stable exchange rate causes lower levels of correlation and fortifies diversification portfolios.
  9. Keywords:
  10. Stock Market ; Diversification ; Housing Market ; General Autoregressive Conditional Heteroskedastic (GARCH) ; Conditional Correlation ; Excess Return ; Time Varying Correlation

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