Analysis of Fluctuations between Housing Sector and Capital Market: Evidence from Iran

Abstract

This study aims to examine fluctuations and the interconnections between the housing sector and the capital market in the Iranian economy, with the stock market serving as a proxy for the capital market. Many factors such as macroeconomic instability, sanctions, and exchange-rate fluctuations might cause connected asset prices to spillover portfolio reallocation channels. Conditional volatility is captured using ARCH and GARCH models, and the direction of influence between the two markets is evaluated using Granger causality tests. The findings demonstrate that stock market volatility is more robust and long-lasting than housing market volatility, suggesting a higher susceptibility to shocks. In order to represent asymmetric or long-memory behavior, more flexible models could be needed, as the housing market seems less responsive under the basic ARCH design. The Granger causality evidence shows a bidirectional, time-varying relationship between the two markets, with the direction of causality contingent upon the market conditions and lag structure. Overall, the results point to a nonlinear relationship between Iran's housing and capital markets that is influenced by more general macroeconomic factors. Investors and governments that are interested in asset allocation and market stability should take note of these findings.