Foreign Ownership of Stocks and Long-Run Interdependence Between National Housing and Stock Markets - Evidence from Finnish Data

Posted: 12 Jun 2010

See all articles by Elias Oikarinen

Elias Oikarinen

University of Oulu - Oulu Business School; University of Turku, Department of Economics

Date Written: June 10, 2010

Abstract

Globalization of the financial markets may have undermined co-movement between stock and housing markets, at least in small open economies. This paper provides an empirical study on the long-term dynamic interrelation between stock and housing markets in a small open economy with special attention to the effect of foreign investors on the dynamics. The empirical findings, based on a quarterly dataset from Finland over 1970-2006, do not support the hypothesis of diminished co-movement between Finnish stock and housing markets after the abolishment of the foreign ownership restrictions of stocks in 1993. The markets still appear to be tightly interdependent in the long run. Nevertheless, the results suggest that the substantial growth in the foreign ownership of Finnish stocks induced a large and long-lasting deviation from the co-integrating long-run relation between stock and housing prices. The results also imply that diversification between stock and housing markets works the worse the longer the investment horizon is.

Keywords: housing, stock, co-movement, cointegration, diversification

JEL Classification: G10, G11

Suggested Citation

Oikarinen, Elias, Foreign Ownership of Stocks and Long-Run Interdependence Between National Housing and Stock Markets - Evidence from Finnish Data (June 10, 2010). Journal of Real Estate Finance and Economics, Vol. 41, No. 4, 2010, Available at SSRN: https://ssrn.com/abstract=1623406

Elias Oikarinen (Contact Author)

University of Oulu - Oulu Business School ( email )

Finland

University of Turku, Department of Economics ( email )

Turku, FIN-20500
Finland

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