Abstract

This paper examines empirically the dynamic relationship existing between the stock and real estate markets in the State of Kuwait for the period from January 2007 to December 2017. The main features of the real estate market in Kuwait are reviewed, and two indices are constructed to measure the activity of the residential real estate (land and houses) and multi-apartment buildings in the Kuwaiti real-estate market. The empirical analysis employs the main proper tests, such as the Johansen (1998) cointegration test and Vector Error Correction Model (VECM). These two tests confirm the long- and short-term association between Kuwaiti stock prices and multi-apartment building prices only, while no evidence of such a relationship is found for the residential real estate (land and houses) prices. This paper extends the literature available on the emerging stock markets, as the Kuwaiti Stock Market is one of the oldest stock markets in the member countries of the Gulf Cooperation Council (GCC). In addition, the results obtained in this paper have useful implications for academics and policy-makers in Kuwait.

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