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Abstract
The long run linkages between Swedish housing prices and property stock prices are investigated with the consideration that rental control system applied in Sweden could deviate asset prices from the suggested co‐integration. To confirm the degree of equilibrium, Error Correction Model with exogenous variables and the effect of the tax reform in 1991 are examined. Roles of rentals on the behavior of asset prices are also presented. This study confirms the existence of long‐term equilibrium between asset prices and indicates a semi‐strong efficiency of asset market. Furthermore, this study also suggests the effects of rentals on improving speed to the long‐term equilibrium.
Acknowledgements
I would like to thank especially Katinka Hort for valuable and clarifying suggestions. The comments of Roland Andersson, Alfred Kanis and Barot Bharat are gratefully acknowledged. Helpful comments by reviewers and Editor of the journal are also gratefully acknowledged. The project has received financial support from Lars Erik Lundbergs Stipendiestiftelse.
Notes
1. Data from real‐estate consultants Leimdörfer.
2. The results of maximum Eigen‐value statistics are similar.
3. The co‐integration between these variables has been tested firstly with VAR(4). To take all these variables as exogenous values could be risky, this bases the assumption that price index does not have significant effects on theses values. Takala and Pere (Citation1991) did similar tests. Description on data can be found in Appendix III. I am grateful for the data help from Bharat Barot.
4. During 1991 to 1993, the economy in Sweden was in recession and the GDP fell around 17.4% during this period. This undoubtedly also contributes to the decrease of the housing price in 1990s.
5. The co‐integration between housing price, property stock price and rentals has been tested firstly with VAR(4).