Is the Korean housing market following Gangnam style?
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Is the Korean housing market following Gangnam style? Khamis Hamed Al-Yahyaee1 · Walid Mensi1,2 · Hee-Un Ko3 · Massimiliano Caporin4 · Sang Hoon Kang5 Received: 5 July 2019 / Accepted: 13 August 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract Gangnam is a prime district in Korea known for its expensive real estate market due to convenient transportation, shopping and business centers, and elite schools and academies in the area. This paper examines spillovers and network connectedness in the Korean regional markets using the spillover index of Diebold and Yilmaz (J Econom 182:119–134, 2014). We use the quantile regression approach to investigate the macroeconomic factors driving the total spillover effects under low, normal, and high spillovers. We find that the 1997–1998 Asian currency crisis intensified regional spillovers in the Korean housing market. Moreover, Gangnam is the largest transmitter of spillovers across the regional housing markets in Korea. Our visual network illustrates that Gangnam is a hub of connectedness, implying that it is the most influential shock transmitter among the regional housing markets. Our study has an implication for investors: macroeconomic factors affect spillovers across regional housing sales and rental markets under different degrees of spillover. Keywords Korean regional housing market · Dynamic spillover · Network connectedness · Quantile regression approach · Spillover index JEL classification C58 · F37 · G14 · G15 · Q3
1 Introduction Since the outbreak of the 2007 US subprime crisis, most central banks have adopted quantitative easing (QE) measures to recover from the economic recession. QE lowers interest rates and increases money supply, resulting in price bubbles in global housing markets. This dramatic house price movement has attracted global attention because of its extensive links to and consequent effects on the world economy (Yang et al. 2018). Specifically, the Korean housing market has been overvalued for the past 10 years because of the redevelopment of urbanization resulting from a low-interest-rate regime (Korea Real Estate Market Report 2017). According to the Korean Statistical Informa-
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tion Service, the national housing purchase price index increased by 0.79% in 2016.1 The South Korea Housing Index attained an all-time high of 103.70 points in June 2018 compared with the record low of 35.50 points in March 1987.2 In particular, housing prices in the Gangnam region have triggered bubbles and co-movements in other regional housing markets (Hyun and Milcheva 2018; Lee and Lee 2014, 2015). Gangnam is famous for its wealth and high standard of living. The neighborhood boasts of large businesses, modern buildings, fancy nightclubs, upscale restaurants, expensive brand-name stores, and multinational businesses such as the South Korean head offices of Google, Toyota, and IBM. Elite schools, which are rated the best in the country, a
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