Bank integration and co-movements across housing markets

Milcheva, S. and Zhu, B. (2016) Bank integration and co-movements across housing markets. Journal of Banking & Finance, 72 (Supplement). S148-S171. ISSN 0378-4266 doi: 10.1016/j.jbankfin.2015.07.002

Abstract/Summary

This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/40764
Identification Number/DOI	10.1016/j.jbankfin.2015.07.002
Refereed	Yes
Divisions	Henley Business School > Real Estate and Planning
Publisher	Elsevier
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