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Bank integration and co-movements across housing markets

Milcheva, S; Zhu, B; (2016) Bank integration and co-movements across housing markets. Journal of Banking & Finance , 72 (S) S148-S171. 10.1016/j.jbankfin.2015.07.002. Green open access

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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.

Type: Article
Title: Bank integration and co-movements across housing markets
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jbankfin.2015.07.002
Publisher version: http://dx.doi.org/10.1016/j.jbankfin.2015.07.002
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: House prices, Bank capital flows, Bank integration, Dynamic spatial panel model, Global banking channel, Mortgage market development
URI: http://discovery.ucl.ac.uk/id/eprint/10046929
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