Do real estate prices and stock prices move together? An international analysis

The relationship between stock prices and real estate prices has been the s ubject of substantial debate in both the academic and practitioner literatu res. Existing studies have focused on the time series of stock and real est ate returns using data from a single country, such as the U.S. By necessity , these studies examine return and price changes over short intervals, crea ting a bias when property values are smoothed from year to year. Using data from 17 different countries over 14 years, this paper examines the relatio n between stock returns and changes in property values and rents. Consisten t with other country-specific studies, we find that, with the exception of Japan, the contemporaneous relation between yearly real estate price change s and stock returns is not statistically significant. However, when the dat a are pooled across countries and when we look at longer measurement interv als, a significant relation between stock returns and both rents and value changes becomes apparent. Real estate prices are also found to be significa ntly influenced by GDP growth rates and provide a good long-term hedge agai nst inflation but a poor year-to-year hedge.