Long- and Short-Run Relationships between House and Stock Prices in South Africa: A Nonparametric Approach

This paper provides empirical evidence on the long- and short-run relationships between real house and stock prices of South Africa. Standard linear tests may not detect the existence of long- and short-run relationships between time series especially in the presence of structural shifts or regime changes, which, in turn, may cause nonlinearities in the observed series. Thus, in this study, both linear and nonparametric cointegration and Granger Causality tests were conducted utilizing a monthly data set over 1966:01 and 2011:06. Results from the linear cointegration test showed no long-run relationship between house and stock prices. At the same time, the linear Granger causality test produced no evidence of causality running in any or both directions either. In contrast, the nonparametric cointegration test showed the existence of a long-run one-to-one relationship between the two series, with the nonparametric Granger causality test, in addition, indicating a bi-directional causality.