Reits, Interest Rates and Stock Prices in Malaysia

By Lean, Hooi Hooi; Smyth, Russell | International Journal of Business and Society, January 2012 | Go to article overview

Reits, Interest Rates and Stock Prices in Malaysia


Lean, Hooi Hooi, Smyth, Russell, International Journal of Business and Society


ABSTRACT

This article examines the dynamic linkages between real estate investment trusts (REITs), which are a proxy for investment in real estate, interest rates and stock prices in Malaysia over the period 2006 to 2009. Two mechanisms have been proposed to interpret the relationship between investment in real estate and stocks. The first is the wealth effect, which states that investors with unanticipated gains in share prices will invest in real estate. The second is the credit-price effect, which states that if real estate prices increase, firms holding commercial real estate will have large unrealized capital gains, meaning that investors will bid up the equity value of the firm. This suggests that the housing market will lead the stock market. Over the period 2006 to 2009, real estate and stock prices have surged in tandem in Malaysia. We find evidence of a wealth effect in the short-run, while in the long-run for some REITs we find support for the wealth effect, while for others we find evidence of feedback effects between real estate and stocks. This finding is consistent with a spiralling upturn in both prices and provides support for both effects operating together. The results lend support to concerns that the Malaysian real estate market is characterized by an asset bubble and that a decline in the stock market could burst the Malaysian real estate bubble.

Keywords: REITs, interest rates, stock prices, Malaysia

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

This article attempts to answer the question: Does the real estate market lead the stock market or does the stock market lead the real estate market in Malaysia? Specifically, we test whether there is a causal relationship between Real Estate Investment Trusts (REIT), stock prices and interest rates in Malaysia. While our primary focus is on the relationship between real estate and stock markets, employing bivariate analysis is not satisfactory because the relationship between the variables might be spurious reflecting common factors (Quan & Titman, 1999). We include the interest rate, which is likely to be a key determinant of an investor's ability to borrow to finance investment in the housing market and stock market (Chen, 2001), as an additional variable. Data on direct investment in real estate is not available, but one can indirectly trade real estate through REITs. Their primary business is managing groups of income-producing properties and they distribute most of their profits as dividends to shareholders. REITs distribute 90 per cent of taxable profits as dividends. In contrast to unit trusts, REITs are actively traded on stock exchanges and form an avenue for exploring the linkages between stock and real estate investments (Subrahmanyam, 2007).

To this point most studies of this sort have focused on advanced markets (Ansari, 2006; Green, 2002; Kakes & Van den End, 2004; Kapopoulos and Siokis, 2005; Sutton, 2002). There are few studies of the dynamic linkages between real estate and stock markets for developing markets or Asian markets (Chen, 2001; Ibrahim, 2010; Sim & Chang, 2006). There are no existing studies for Malaysia. Malaysia is an interesting country in which to examine the relationship between real estate, stock prices and interest rates because there has been a parallel surge in real estate and stock prices, since the Global Financial Crisis, giving rise to speculation of a financial bubble (Bryson & Kamaruddin, 2010).

Two mechanisms have been proposed to interpret the relationship between real estate prices and stock prices (Kapopoulos & Siokis, 2005). The first is the wealth effect. The wealth effect suggests that households with unanticipated gains in share prices will increase the amount of housing. Hence, the stock market will lead the housing market. This will occur through two channels because housing can be considered to be both a consumption and investment good. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Reits, Interest Rates and Stock Prices in Malaysia
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.