Abstract
This article investigates spatial linkages in returns, idiosyncratic risks and volatilities across 19 U.S. regional housing markets. Using Case & Shiller housing price indices from 1995 through 2009, we find that interconnections across markets can be wider and stronger than would normally be expected. They are wider because, in addition to geographic closeness, economic proximity is also an ...
Abstract
This article investigates spatial linkages in returns, idiosyncratic risks and volatilities across 19 U.S. regional housing markets. Using Case & Shiller housing price indices from 1995 through 2009, we find that interconnections across markets can be wider and stronger than would normally be expected. They are wider because, in addition to geographic closeness, economic proximity is also an important source of influence; they are stronger because of the significant contagion effects during the 20072009 subprime and financial crises. The increased comovement and interdependence, especially among more geographically diverse regions with similar economic conditions, may help explain the failure of geographic portfolio diversification strategies.
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