Journal of Modern Accounting and Auditing, ISSN 1548-6583 August 2011, Vol. 7, No.

8, -

The Relationship Between the Real Estate Market and the Stock Market and Its Impact on the Strategic Planning Process in the Jordanian Organizations
Ahmad M. Zamil
King Saud University, Kingdom of Saudi Arabia Ahmad Y. M. Areiqat Al-Ahliyya Amman University, Jordan

This study aims at the relationship between the real estate market and Amman Stock Exchange, through the impact of three macroeconomic factors (GDP, inflation rate, and the population growth rate) and another three factors from the microeconomic indicators (interest rate, remittances of Jordanian expatriates, and the loans provided by the Jordanian banks). The results show that the stock market is more sensitive to the microeconomic indicators than the real estate market, and responds more rapidly than the real estate market for the changes in the microeconomic indicators. The study presents some recommendations for the Jordanian companies who own or manage any investment portfolio to be aware for the existing relationship between the two markets, and to reflect this awareness in their strategic Plans, Particularly in the regression atmosphere that causes by global crisis. Keyword: real estate market, stock market, strategic planning

Introduction
The relationship between the real estate market (R.E.) and the financial stock market as two investment arenas within the markets of any economy has a great importance. The changes in microeconomic and macroeconomic factors across the time affect the two markets in many areas such as, prices, demand, supply, and the cost, and the rate of return. For Jordan, the landscape or real estate in Jordan evolved transforming the face of major cities across the kingdom. The real estate industry showed significant changes during the five years expressed by a large development projects ranging from residential, commercial, tourism, and industrial estates. This booming in the real estate sector can be attributed to several factors: (1) the growth of the Jordanian economy; (2) investors from gulf countries with excess liquid, resulting from rising oil revenues who found profitable opportunities in the Jordanian market; (3) political unrest in Lebanon and Iraq, increased the population in Jordan and the demand for housing and other services; (4) the wide base of young population in Jordan created a natural demand for housing (Jordan investment board, 2008). But, almost since two years the real estate market in Jordan shows a sharp regression in both demand and
Ahmad M. Zamil, Ph.D., associate professor, Faculty of Administrative Science, Riyadh Community College, King Saud University. Ahmad Y. M. Areiqat, Ph.D., assistant professor, Business Administration Department, Faculty of Financial and Administrative Science, Al-Ahliyya Amman University.

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET prices. And this regression reflected on the prices of the construction companies stocks in Amman stock exchange. Also this regression resulted by many factors in both macro and micro economic. This study will focus on the impact of the change in gross domestic product, the change in the inflation rate, and the population growth on the trading volume of the real estate market, as macro economic factors, and the impact of the funding polices in the Jordanian banks that provided to the two markets, the change of the remittances of Jordanian expatriates, and the change in the interests rate. And after determination the impact of those factors on each market, the researcher can deduce the relationship between the two markets, and finally this relationship features will become as independent variables to measure their impact on the strategic planning process in the Jordanian organizations.

Theoretical Framework and Hypothesis

Problem Statement and Questions Because the two markets affected by the same economical factors, we can suggest the problem of this study in the form variations in the prices and trading volume of the real estate market have a significant impact on the Amman stock exchanges indicators: The gener al price index and the trading volume, this causal relationship may affect the strategic planning process in Jordanian organizations. The study is going to discuss this problem through the following questions: (1) Is there any relationship between the variations in the prices of the real estate assets and the variations in Amman stock exchange? (2) What is the role of inflation rates in the variations occurring in the two markets? (3) What is the role of the changes in (GDP) in exploring and forecasting the potential variations in the two markets? (4) How can Jordanian organizations benefited from the impacts of the micro economic factors through their strategic planning? The Study Importance: The relationship between the two markets through discussion the impacts of the macroeconomic, and microeconomic factors on each market will provide the investors, business organizations, and decisions makers, and speculators a significant aid to forecast future performance in their strategic planning. Also the portfolio managers can be benefited from the findings of this study, while deciding their assets allocations. The Study Objectives: This study aims to accomplish the following objectives: (1) To discern the impact of the macroeconomic factors (GDP inflation rate, and population growth) on the trading volume in the real estate market and prices of the stocks of the construction companies. (2) To discern the impact of the microeconomic factors (funding policies, remittances of Jordanian expatriates, and the interest rate) on the volume and prices of the stocks of the constriction companies. (3) To discern the impact of the macroeconomic factors (The same factors) on the price index and the trading volume in Amman stock exchange. (4) To discern the impact of micro economic factors (the same factors) on the price index and the trading volume in Amman stock exchange.

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET (5) Making links between the impacts of the nominal previous factors, to determine the relationship between the two markets. (6) To describe the impact of the existing relationship between the two markets on the strategic planning process in the Jordanian organizations. The Study Hypotheses (1) There is no impact for the changes in the inflation rate on the trading volume in the real estate market and the prices of the stocks of the constructions companies. (2) There is no impact for the changes in the gross domestic product on the trading volume in the real estate market and the prices of the stocks of the constructions companies. (3) There is no impact for the population growth rate in Jordan on the trading volume in the real estate market and the prices of the stocks of the constructions companies. (4) There is no impact for the changes in the funding policies applying by the Jordanian banks on the trading volume in the real estate market and the prices of the stocks of the constructions companies. (5) There is no impact for the changes in the volume of the remittances of Jordanian expatriates on the trading volume in the real estate market and the prices of the stocks of the constructions companies. (6) There is no impact for the changes in the interest rate on the trading volume in the real estate market and the prices of the stocks of the constructions companies. (7) There is no impact for the changes in the inflation rate on the price index and the trading volume in Amman stock exchange. (8) There is no impact for the changes in the (GDP) on the price index and the trading volume in Amman stock exchange. (9) There is no impact for the changes in the population growth rate on the price index and the trading volume in Amman stock exchange. (10) There is no impact for the changes in the funding polices applying by the Jordanian banks on the price index and the trading volume in Amman stock exchange. (11) There is no impact for the changes of volume of remittances of the Jordanian expatriates on the price index and the trading volume in Amman stock exchange. (12) There is no impact for the changes in the interest rate on the price index and the trading volume in Amman stock exchange. (13) There is no relationship between the real estate market in Jordan and Amman stock exchange. (14) There is no impact for the existing relationship between the real estate market and the stock market on the strategic planning for the Jordanian organizations. The Study Model
Independent variables Macroeconomic variables Changes in the inflation rate. Changes in GDP Changes in population growth rate. Microeconomic variables A change in funding polices (Jordanian banks). Changes in the volume of remittances of Jordanian expatriates. Changes in interest rate. Dependent variable Real estate market Prices of the constructions companies stocks. Trading Volume. Stock market General price index Trading volume

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
Figure 1. The two markets.

Theoretical Procedural Definition of the Study Variables: (1) Real estate markets: is the market where real estate assets in all its forms (Land, buildings, and stocks of real estate companies) and all its uses (residential, agricultural, commercial and industrial use) are exchanged by buying and selling of these assets (Hsieh & Peterson, 2000). (2) Gross domestic product (GDP): the market value of the goods and services produced by a country (Quick MBA, 2007). (3) Inflations: is an increase in the price of a basket of goods and services that is representative of the economy as a whole. (4) Demand: is an economic principle that described a consumers desire and willingness to pay a price for a specific good or service (Guinan, 2009).

Literature Review:
Peskin (2009) aimed to diagnose the reasons that caused the current regression in the real estate market. The author pointed out that the Jordanian real estate market is suffering from a sharp decline in demands, as part of the implications of the global financial crisis. According to the chair man of the real estate investments company, the decline in the Jordanian real estate market began in 2007, but the situation worsened in light of the global financial crisis in 2008, also, because the banks refraining from giving loans for the purpose of purchasing apartments. Then the author recommended that the government aid in this aspect is very necessary. Florian (2008) aimed to high light the factors that enhance the growth of the real estate sector in Jordan. In this area the author pointed out that recent announcements from the growing sector include a $7bn housing projects for low-income citizens in the kingdom and the entry into the market by one of the regions largest develop. Also, the high degree of king Abdullah II care for this sector expressed by his launched the national housing initiative, which is a multi-billion dollar project that aims to build 120,000 properties throughout the kingdom for low and limited-income Jordanians. The author indicated that UAE has a significant role in the growth of this sector, because $300m will be spent to build two residential towers in Amman. As a result of this article, the potential success of the project will be, offering the housing units at affordable payment terms, and the project should be conduct through collaboration with the Jordan housing and urban development corporation. Tuluca, Myer, and Webb (2000) investigated how co-integration of capital markets affects the dynamics of public and private real estate markets. The results show that the price indices of the five assets (T-bills, bonds, stocks, and both public and private real estate) are no stationary and co-integrated. Some implications for the long-term equilibrium relationship for portfolio divaricating, price discovery and prediction are discussed. The results show that the long-term equilibrium relationship establishes a feedback between the two real estate markets, but the private market seems to lead the public one. Possible explanations are also explored. Eichholtz (1996) investigated the effectiveness of international real estate diversification relative to international diversification of stock and bond portfolios. Tests of international correlation matrixes of real estate returns, common stock returns, and bond returns indicate significantly lower correlations between national real estate returns than between common stock or bond returns. The implication is that international diversification reduces the risk of a real estate portfolio more than that of common stock and bond portfolios.

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET Wilson and Okunev (1999) pointed out that the literature is not clear on whether there are co-dependencies domestically across real estate and stock markets, nor whether there are international co-dependencies for these asset classes, despite the importance of this question for portfolio diversification strategies. They used a non-linear technique to search for co-dependence over the long term. We find no evidence to suggest long co-memories between stock and property markets in the United States and the United Kingdom, but some evidence of this in Australia. In an international context, if we take whole of sample period data , they found no evidence of long co-memory effects, however if we sample on either side of the 1987 market correction we find evidence of long co-memory. Hu & Yan (2007) aimed to explore the relationships between the Chinese real estate and stock market by comparing the fluctuation of stock index with that of real estate index from 1998 to 2006. The results from this study show three specific outcomes that extend the current literature on real estate finance. First, it is shown that fluctuation of real estate index lead that of stock index between 1998 and 2006. Because of financing market structural problem, Chinese real estate market is more sensitive to economy than stock market. Second, the results also indicate that wealth effect in real estate market is more than stock market in China. The reason is that the scale of stock market is small and the fluctuation of stock price is uncertain. Finally, rising of stock price would reduce the rate of real estate price increasing. These results appear to have important implications for managing property assets in the funds management industry and also for the pricing efficiency within the Chinese property market. It is also useful for policy makers in making decisions with regard to economy safety. Oikarinen (2006) supposed that there are a number of reasons to assume that significant interdependences exist between the financial asset markets and the housing market. The purpose of this paper is to study the longand short-term dynamic interdependences between stock, bond and housing markets using time series econometrics and utilizing a quarterly datSSEt from Finland over 1970-2005. In addition to short-term dynamics, there also appears to be long-run interrelations between the asset prices according to co-integration analysis. There is clearly a structural break in the long-run relationship between stock and housing prices in the early 1990s. Okunev, Wilson, and Zurbruegg (2000) tried to examine the dynamic relationship that exists between the US real estate and S&P 500 stock markets between the years of 1972 to 1998. This is achieved by conducting both linear and nonlinear causality tests. The results from these tests provide a number of interesting observations which primarily show linear relationships to be spuriously affected by structural shifts which are inherent within the data. Linear test results generally show a uni-directional relationship to exist from the real estate market to the stock market. However, these results are not consistent with financial theory and for all sub-samples of the data. In contrast, the nonlinear causality test shows a strong unidirectional relationship running from the stock market to the real estate market, and is consistent in the presence of any structural breaks. Wilson, Okunev, and Zurbruegg (2002) explored the relationship between the Australian real estate and equity market between 1980 and 1999. The results from this study show three specific outcomes that extend the current literature on real estate finance. First, it is shown that structural shifts in stock and property markets can lead to the emergence of an unstable linear relationship between these markets. That is, full-sample results support bi-directional Granger causality between equity and real estate returns, whereas when sub-samples are chosen that account for structural shifts the results generally show that changes within stock market prices influence real estate market returns, but not vice versa. Second, the results also indicate that non-linear

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET causality tests show a strong unidirectional relationship running from the stock market to the real estate market. Finally, from this empirical evidence a trading strategy is developed which offers superior performance when compared to adopting a passive strategy for investing in Australian securitized property. These results appear to have important implications for managing property assets in the funds management industry and also for the pricing efficiency within the Australian property market, Ullah and Zhou (2003) examined dynamic relationships among three housing market variables and a stock market index in a multivariate vector autoregressive error correction (VAREC) model. It is first found that, in the USA, sales and the median sales price of the existing single-family homes and the 30-year mortgage rate have unit roots, while the New York Stock Exchange (NYSE) value-weighted portfolio returns appear random. Moreover, it is found that not only are three real estate variables co integrated with one another but that they are also co integrated with the stock index returns. After controlling for the unit root problem and co integration, a multivariate VAREC model is further developed to examine dynamic relationships among the four variables using Johansens approach. It is found that the price, mortgage rate, and stock returns affect sales. It is found that the mortgage rate and stock returns affect the price. The 30-year mortgage rate is affected by sales and the stock returns. Except for the mortgage rate which is negatively correlated with the stock returns, significant evidence is not found that sales and the median sales price affect the stock returns directly.

Methodology
In this section, the researcher will list the Jordanian economy factors that may affect the real estate market and Amman stock exchange: Table 1 Real GDP Growth
Year Real GDP growth (%) Note. Source: IMF Report (2009). 2001 5.3 2002 5.8 2003 4.2 2004 8.6 2005 8.1 2006 8.0 2007 8.9 2008 7.9

Table 2 Inflation Rate (Consumer Prices)

Year 2003 2004 2005 2006 2007 2008 2009 estimated Inflation rate (%) 3.30 2.40 3.20 4.5 6.3 5.4 14.9 Percent change (%) -27.27 33.33 40.63 40 -14.29 175.93

Notes. The information reflects the percent change in consumer prices. Source: Index Mundi (2009).

The Macro and Micro Economic Factors for the Period from 2000-2008 Table 3 The Inflation Average Consumer Prices
Year Inflation average, consumer prices Percent change (%)

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
2000 2001 2002 2003 2004 2005 2006 2007 2008 0.674 1.768 1.835 1.627 3.365 3.491 6.255 5.385 14.920 12.71 162.31 3.79 -11.34 106.82 3.74 79.18 -13.91 177.16

Table 4 Amman Stock Exchange: Weighted Index and Trading Value

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Index 813.3 1,060.6 1,090.9 1,761.5 2,729.1 4,259.7 3,013.7 3,675.0 2,758.4 Trading value 334,724,633 668,652,674 950,272,995 1,855,176,028 3,793,251,050 16,871,051,948 14,209,870,592 12,348,101,910 20,318,014,547

Table 5 Remittances of Jordanian Expatriates

Year 2001 2002 2003 2004 2005 2006 2007 2008 The volume 1,283.3 1,362.3 1,404.5 1,459.6 1,544.8 1,728.7 2,123 1,793

Table 6 Interest Rates for the Period 2000-2008 for the Time Deposits
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Interest rate (%) 6.55 5.19 3.07 2.75 2.49 3.52 5.13 5.50 5.42

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET The Relationship between Macro Economic Factors and the Amman Stock Exchange (Index and Trading Volume). Table 7 Inflation Rate (Consumer Prices)
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Inflation rate 0.674 1.768 1.835 1.627 3.365 3.491 6.255 5.385 14.92 Weighted index 813.3 1,060.6 1,090.9 1,761.5 2,729.1 4,259.7 3,013.7 3,675.0 2,758.4 Trading volume 334,724,633 668,652,674 950,272,995 1,855,176,028 3,739,251,050 16,871,051,948 14,209,870,542 12,348,101,910 20,318,014,547 X change in inflation rate 1.094 0.067 -0.208 1.738 0.126 2.764 -0.87 9.535 14.246 Y C, I Z change in T.V

247.3 334 30.3 281 670.6 905 967.6 1,884 1,530.6 13,132 -1246 -2661 661.3 -1862 916.6 7,970 3,778.3 19,983

In order to measure the relationship between the change in inflation rate and both, the weighted general index and the trading volume, we have to calculate Pearson correlation factor. Table 8 The Relationship Between Inflation Rate and Amman Stock Exchange Variables
(X) (Y) 271 2 -139 1862 193 -3444 -575 8790 6910 X2 1.2 0.004 0.04 3.02 0.16 7.64 0.76 90.92 103.744 Y2 61,157 918.1 449,704 936,250 234,736 1,552,516 437,318 840,156 6,620,765 (X) (Z) 365 19 -188 3274 1655 -7355 1,620 75,999 Z2 111,556 78,961 828,075 3,549,456 172,449,424 7,080,921 3,467,044 63,520,900 251,086,337

The Pearson correlation factor between the changes in inflation rates and the changes in the general index in Amman stock exchange was 0.009 which means that there is no relationship between the two variables. Also Pearson correlation factor between the changes in inflation rate and the changes in the trading volume in Amman stock exchange was -2.02 which means there is no relation-ship between the two variables. Table 9 The Relationship Between the Real Growth in GDP and Amman Stock Exchange Variables
Year 2001 2002 2003 2004 2005 X Y Real growth Change GDP (%) index 5.3 247.3 5.8 30.3 4.2 670.6 8.6 967.6 8.1 1,530.6 Z Change volume 334 281 905 1,884 13,132 in X-X-1.8 -1.3 -2.9 1.5 1 Y-Y-225 -442 198 495 1,058 (X-X-) * (Y-Y-) 405 574.6 574.2 742.5 1,058 (X-X)2 3.24 1.69 8.41 2.25 1 (Y-Y)2 50,625 195,364 39,204 245,025 1,119,364

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
2006 2007 2008 Mean 8 8.9 7.9 7.1 -1246 661.3 916.6 472.29 -2,661 -1,862 7,970 2,497.86 0.9 1.8 0.8 -1,718 189 441 -1,546.2 340.2 352.8 2,501.1 0.81 3.24 0.64 21.28 2,951,524 35,721 194,481 4,831,308

By calculating Pearson correlation factor which equals (0.246) shows that there is a weak relationship between the changes in (GDP) growth rate and the changes in the general weighted index in Amman stock exchange. Table 10 The Relationship Between Changes in GDP Growth Rate and General Weighted Index
Year 2001 2002 2003 2004 2005 2006 2007 2008 Z-Z-2,163.86 -2,216.86 -1,592.86 -613.86 -10,634.14 -5,158.86 -4,359.86 5,472.14 (X-X-) (Z-Z-) 3,894.95 2,881.92 4,619.29 920.79 10634.14 -4,642.97 -7,847.75 4,377.71 14,838.08 (Z-Z-)2 4,682,290 4,914,468 2,537,203 376,824 113,084,493 26,613,836 19,008,379 29,944,316 201,116,809

Also by calculating Pearson correlation factor, the result shows that there is a weak relationship between the real growth of (GDP) and the trading volume in Amman stock exchange, because Pearson factor was only 0.227. The final macroeconomic variable is the growth of Jordanian population. Measuring the relationship between the population growth and Amman stock exchange performance may exist, but the researcher may accept it as a probability feature. Table 11 The Relationship Between Changes in Population and Changes in Price Index
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 X Y Changes in population Changes in price index 200,000 200,000 200,000 200,000 300,000 200,000 200,000 200,000 1,700,000 247.3 30.3 670.6 967.6 1,530.6 -1246 661.3 916.6 3,778.3 (X)(Y) 49,460,000 6,060,000 134,120,000 193,520,000 459,180,000 -249,200,000 132,260,000 183,320,000 908,720,000 Y2 61,157.3 918 449,704 936,250 2,342,736 1,552,516 437,318 840,165 6,620,765 X2 40,000,000,000 40,000,000,000 40,000,000,000 40,000,000,000 90,000,000,000 40,000,000,000 40,000,000,000 40,000,000,000 370,000,000,000

By calculating the coefficient correlation the result was that there is no any relationship between the changes in population and the changes in the price index in Amman stock exchange. The Relationship between Micro Economic Factors and the Amman Stock Exchange Performance (Price

10

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET Index and Trading Volume). Table 12 Interest Rate: Time Deposits
Year 2001 2002 2003 2004 2005 2006 2007 2008 X Y Z Changes in the Changes in the Changes interest value index price volume -1.36 247.3 334 -2.12 30.3 281 -0.32 670.6 905 -0.26 967.6 1,884 1.03 1,530.6 13,132 1.61 -1,246 -2,661 0.37 661.3 -1,862 -0.08 916.6 7,970 -0.97 3,778.3 19,983 in (X)(Y) -336.3 -64.2 -214.6 -251.6 1,576.5 -2,006.0 244.7 73.3 -981.2 X2 1.85 4.49 0.10 0.06 1.06 2.59 0.14 0.011 10.3 Y2 61,157 918 449,704 936,250 2,342,736 1,552,516 437,318 840,165 6,620,765

The correlation matrix between the changes in the interest rates and the price index was (0.69) which means that there is a relationship between the two Variables. Increasing in interest rates meets by increasing in price index. And now we will compute (R) between the changes in the interest rates and the changes in the trading volume in Amman stock exchange. Table 13 The Relationship Between Changes in Interest Rate and Changes in Trading Volume
Year 2001 2002 2003 2004 2005 2006 2007 2008 X Changes in the In. R -1.36 -2.12 -0.32 -0.20 1.03 1.61 0.37 0.08 -0.97 Y (X) (Y) Changes in volume 334 -454.2 281 -595.7 905 -289.6 1,884 -489.8 13,132 13,526 -2,661 -4,284.2 -1,862 -677.8 7,970 637.6 19,983 7,372.3 X2 1.85 4.49 0.10 0.06 1.06 2.59 0.14 0.01 10.3 Y2 111,556 78,961 828,075 3,549,456 172,449,424 7,080,921 3,467,044 63,520,900 251,086,337

The correlation matrix between changes in interest rates and changes in trading volume equals (0.35) which reflects a weak relationship between the two variables. Table 14 Remittances of Jordanian Expatriates
Year 2001 2002 2003 2004 2005 2006 X Y Changes in Changes remittances (million) index 79 247.3 79 30.3 42.2 670.6 55.1 967.6 85.2 1,530.6 237.9 -1246 in Z Changes in T.V 334 281 905 1,889 13,132 -2,661 (X) (Y) 19,537 2,394 28,299 53,315 130,407 -296,423 X2 6,241 6,241 1,781 3,036 7,259 56,596 Y2 (X) (Z) Z2

61,157 26,386 111,556 918.1 22,199 78,961 449,704 38,191 828,075 936,250 103,808 3,549,456 2,342,736 1,118,846 17,244,942 1,552,516 -633,051 7,080,921

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
2007 2008 -319 -102 157.4 661.3 916.6 3,778.3 -1,862 7,970 19,983 -210,955 -93,493 -366,919 101,761 10,404 193,319 437,318 840,156 6,620,765 593,978 3,467,044 -812,940 63,520,900 457,417 251,086,337

11

Note. Source: Amman Chamber of Commerce Report (2007).

Because of unavailability of the remittances in 2000, the researcher considered that is the change is the same as 2002. By computing the coefficient correlation (Pearson) to measure the relationship between the remittance of the Jordanian expatriates and the weighted price index of Amman stock exchange, we fined that the correlation matrix is -0.46 which means a negative weak relationship. This means decrease in remittances causes increase in the price index, and we can recognize that in 2005 and 2006. Table 15 The Relationship Between Remittances and Price Index
2005 2006 Remittances 1,544.8 million 1,782.7 million Price index 1,530.6 -1246

In the other side, the correlation matrix between the remittances and the trading volume in ASE was (0.5) which means a medium relationship between the two variables. The Relationship between funding policies applying by the Jordanian banks and Amman stock exchange performance (price index, trading volume): The main reason for changing the funding polices by the Jordanian banks to be more rigid was the global financial crisis. The table below shows the total of credit facilities by licensed banks for the period 2000- Aug 2008. Table 16 The Relationship Between Changes in Loans and Changes in Amman Stock Market Variables
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Loans in million JD 4,546.5 4,948.6 5,130.0 5,262.4 6,189.2 7,744.3 9,761.9 11,295.6 13,259.5 X Changes In loans 402.1 181.4 132.4 926.8 1,555.1 2,017.6 1,533.7 1,963.9 8,713 Y Z (X) (Y) Changes in Price index Changes In tv 247.3 30.3 670.6 976.6 1,530.1 -1,246 661.3 916.6 3,778.3 334 281 905 1,884 13,132 -2,661 -1,862 7,970 19,983 99,439 5,496 88,787 896,772 2,380,336 -2,513,930 1,014,236 1,800,810 3,771,146 2X 161,684 32,906 17,530 858,958 2,418,833 4,070,710 352,236 3,856,903 13,769,760 2Y 6 61,157 918.1 449,704 936,250 2,342,736 1,552,516 437,318 840,156 6,620,762

Note. Source: Central Bank of Jordan (2009).

The correlation between changes in loans and the price index was 0.075 which means that there is no relationship between the two variables. And, in order to compute the correlation between changes in loans and the trading volume, the table below shows the related numbers, where (X) changes in the loan total and (z) changes in trading volume Table 17 Correlation Coefficient Between Changes in Loans and Changes in Trading Volume

12 Year 2001 2002 2003 2004 2005 2006 2007 2008

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
(y) (z) 134,301 50,973 119,822 1,746,091 20,369,045 -5,368,834 -2,855,749 15,652,283 34,679,932 y2 161,684 32,906 17,530 858,952 2,418,833 4,070,710 2,352,236 3,856,903 13,769,760 2z 111,556 78,961 828,075 3,599,456 172,449,424 7,080,921 3,467,044 632,520,900 251,086,337

The correlation between changes in loans amounts and the trading volume in ASE was (0.51) which means that there is a medium relationship between the two variables. Jordanian Real Estate Markets: In order to measure the relationship between both macroeconomic factors and microeconomic factors and the real estate market the study will focus on two dimensions related to the real estate market, the prices of the construction companies stock prices in ASE and the trading volume in this market as dependent variables, data collection about the real estate market was very difficult, for that the researcher relies on many recourses, such as Amman chamber of commerce reports, interview with the chairman of the Jordanian investors in the housing sector, and the governmental resource. The relationship between the changes in population growth and the changes in trading volume in the real estate market, and changes in the prices of construction companies stocks. Table 18 The Relationship Between Changes in Population and Changes in Trading Volume of Real Estate Market
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 X Y XY Change in population In trading volume Mill Mill 200 200 200 200 300 200 200 200 1,700 300 500 500 3000 -500 500 600 300 5,200 60,000 100,000 100,000 600,000 -150,000 100,000 1,200,000 60,000 2,070,000 X2 40,000 40,000 40,000 40,000 90,000 40,000 40,000 40,000 370,000 Y2 90,000 250,000 250,000 9,000,000 250,000 250,000 360,000 90,000 1,054,000

Note. Source: chamber of commerce report.

By calculating Pearson correlation, the result was 3.8, which means that there is no relationship between the changes in Jordanian population and the trading volume in the real estate markets. But another data pointed out that there is a strong relationship between the change in the population numbers and the demand in this market, because the governmental statistics indicated that the demand especially for the residential apartments was in the year 2000 for example 28,000 units and 45,000 units in 2008. The absences of the relationship between the changes in population and the trading volume could be attributed to a combination of many reasons; the increase in prices for the construction materials and the lands.

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET And the rigid polices applied by the banks in financing especially after the global financial crises, and the increase in the cost of life for the Jordanian citizen. The second independent variable is the changes in the prices of the stocks of the construction companies. In order to use this variable in a meaningful way, the following facts are very important: (1) The number of the construction companies that their stocks traded in the last day in the study years is 31 companies. (2) There are 18 companies from 31 were founded after the year 2005. (3) For more validity and accountability, the researcher will depend on the data for only 11 companies that have the related data for four years at least, as a sample. (4) The researcher will compute the changes in the stocks price for each company and the mean of these changes. The table below shows the relationship between the two variables. Table 19 The Relationship Between Changes in Population and Changes in Stock Prices of Construction Companies
Years 2006 2007 2008 X Y Changes in population Thousand Changes in stock prices 200 -1.37 200 -0.8 200 -8.7 600 -10.87 XY -274,000 -160,000 -174,000 -2,174,000 X2 40,000 40,000 40,000 120,000 Y2 1.88 0.64 75.69 78.21

13

Note. Source: www.ase.com.jo.

The result shows that there is no any relationship between the two variables. The relationship between the changes in the inflation rates and the changes in the real estate market performance represented by the trading volume and the prices of the construction companies stocks. Table 20 The Relationship Between Changes in Inflation Rate and Changes in Trading Volume in Real Estate Market
Years 2001 2002 2003 2004 2005 2006 2007 2008 X Changes in inflation rates 1.094 0.067 -0.208 1.738 0.126 2.764 -0.87 9.535 14.246 Y Changes in trading volume JD. million 300 500 500 3,000 -500 500 600 300 5,200 XY 328.2 335 -104 5,214 -63 1,382 -522 2,860.5 9,430.7 X2 1.2 0.004 0.04 3 0.016 7.6 0.76 90.9 103.52 Y2 90,000 250,000 250,000 900,000 250,000 250,000 260,000 90,000 10,540,000

Pearson correlation for this relationship was (0.007) which means that there is no relationship between the two variables. Now, the table below shows the relationship between the changes in inflation rates and the changes in stock prices for the construction companies. Table 21 The Relationship Between Changes in Inflation Rate and Changes in Trading Volume in Real Estate Market

14

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
Years 2006 2007 2008 X Changes in inflation rates 2.764 -0.87 9.535 11.43 Y XxY Changes in trading volume JD. Million -1.37 -3.79 -0.8 0.7 -8.7 -82.9 -10.87 -85.99 X2 7.6 0.76 90.9 99.26 Y2 2.74 0.64 75.69 79.07

The correlation matrix between the two variables amounted (2.4) which means that there is no relationship between the two variables. Table 22 The Relationship Between the Real Growth in GDP and the Real Estate Market Performance (Trading Volume, and Stocks Prices)
Years 2001 2002 2003 2004 2005 2006 2007 2008 Mean X Real growth in GDP (%) 5.3 5.8 4.2 8.6 8.1 8 8.9 79 7.1 Y Changes in volume Millions JD 300 500 500 3,000 -500 500 600 300 650 XX -1.8 -1.3 -2.9 1.5 1 0.9 1.8 0.8
-

YY

-350 -150 -150 2,350 -1,150 -150 -50 -350

(X X-) X (Y Y-) 630 195 435 3,525 -1,150 -135 -90 -280 3,220

(x x)2 3.24 1.69 8.41 2.250 1 0.81 3.24 0.64 21.28

(y y)2 122,500 22,500 22,500 5,522,500 1,322,500 22,500 2,500 122,500 7,160,000

The correlation matrix indicated to a very week relationship between two variables, Pearson correlation here equals 0.26. Now, we have to measure the relationship between change in GDP and the stock prices for the construction companies. Table 23 The Relationship Between Changes in Real Growth in GDP and Changes in Trading Volume
Years 2006 2007 2008 Mean X Y Real growth in Changes in volume X XGDP (%) Millions JD 8 -1.37 -0.3 8.9 -0.8 0.6 79 -8.7 -0.4 8.3 -3.6 -0.1 YY
-

-4.97 -4.4 -12.3 -21.67

X Xx Y Y1.49 -2.64 4.92 3.77

(x-x)2 0.09 0.36 0.16 0.61

(y-y)2 24.71 19.36 151.29 195.36

There is a weak relationship between the two variables as Pearson correlation is (0.37). The Relationship Between the Microeconomic Factors (Interest Rates, Remittances, and the Jordanian Banks Policies in Providing Loans) and the Real Estate Market Performance (Trading Volume, and Stocks Price for Construction Companies). Table 24 The Relationship Between Changes in Real Growth in GDP and Trading Volume of Stock Prices of Construction Companies

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
X Real growth GDP (%) -1.36 -2.12 -0.32 -0.25 1.03 1.61 0.37 0.08 -0.97 Y in Changes in trading (x)(y) volume 300 -408 500 -1,060 500 -160 3,000 -780 -500 -515 500 805 600 222 300 24 5,200 -1,872 Changes prices in

15

Years 2001 2002 2003 2004 2005 2006 2007 2008

X2 1.85 4.46 0.10 0.07 1.06 2.59 0.14 10.3

Y2 9,000 25,000 25,000 9,000,000 250,000 250,000 360,000 9,000 1,054,000

(x)(y)

X2

-1.37 -0.8 -8.7 10.87

-2.21 -0.3 -0.7 -3.21

1.88 0.64 75.69 78.21

The relationship between changes in interest rates and changes in the trading volume indicates to a weak relationship which is 0.29 as Pearson correlation. Also, Pearson correlation indicates that there is no relationship between changes in interest rates and changes in the prices of the Jordanian construction companies in the ASE. Table 25 Remittances of Jordanian Expatriates
Years 2006 2007 2008 X Changes in remittances Million JD 237.9 -319 -102 -183.1 Y Changes in stock prices -1.37 -0.8 -8.7 -10.87 (x)(y) -325.9 255.2 887.4 816.7 X2 56,596 101,761 10,404 168,761 Y2 1.88 0.64 7,569 78.21

There is a weak relationship between the two variables, 0.4 as Pearson correlation. Table 26 The Relationship Between Changes in Remittances and Changes in Trading Volume
Years 2001 2002 2003 2004 2005 2006 2007 2008 X Changes in remittances million JD 79 79 42.2 55.1 85.2 237.9 -319 -102 157.4 Y Changes in volume (x)(y) Million 300 23,700 500 39,500 500 21,100 3,000 165,300 -500 -42,600 500 118,950 600 -191,400 300 -30,600 5,200 103,950 X2 6,241 6,241 1,781 3,036 7,259 56,596 101,761 10,404 193,319 Y2 250,000 250,000 250,000 9,000,000 250,000 250,000 360,000 90,000 10,540,000

Pearson correlation coefficient is 0 which means that there is no relationship between the two variables. Table 27 Jordanian Banks Polices in Providing Loans
Years X Changes in loans Y Changes in volume (x)(y) Million X2 Y2

16 2001 2002 2003 2004 2005 2006 2007 2008

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET
402.1 181.4 132.4 926.8 1,555.1 2,017.6 1,533.7 1,963.9 8,713 300 500 500 3,000 -500 500 600 300 5,200 120,630 90,700 66,200 2,780,400 -777,550 1,008,800 920,220 589,170 4,798,570 161,684.4 32,906 17,529.8 858,958 2,418,336 4,070,709.8 2,452,235.7 3,856,903 137,692,637 90,000 250,000 250,000 9,000,000 250,000 250,000 360,000 90,000 10,540,000

The relationship between the two variables is very weak 0.156 as Pearson correlation coefficient. Table 28 The Relationship Between Changes in Loans and Changes in Stock Prices
Years 2006 2007 2008 X Changes in loans 2,017.6 1,533.7 1,963.9 5,512.2 Y Changes in stock prices -1.37 -0.8 -8.7 -10.87 (x)(y) -2,764.1 -1,227 -17,086 -21,077.1 X2 4,070,709.8 2,352,235.7 3,856,903 102,798,485 Y2 2.74 0.64 75.69 79.07

Also, the results indicate to reject any relationship between the independent variable and the dependent variable, because the loans provided by the banks are increased in spite of the rigid policies. The Relationship Between the Real Estate Market in Jordan and the ASE. To determine the relationship between the real estate market in Jordan and the ASE: To determine the relationship between the Jordanian real estate market and Amman stock exchange, the table below shows how each variable either macroeconomic or microeconomic influence the dependent variables used to represent the performance in the two markets. Table 29 The Relationship Between the Real Estate Market and Amman Stock Exchange Market
Independent variables Macro economic variables Inflation rates GDP Changes in population growth ____________________ Changes in inflation rates Changes in real GDP Changes in population Microeconomic variables Changes in interest rates Changes in remittances Changes in loans volume Microeconomic variables Changes in interest rates Changes in remittances Changes in loans volume Amman Stock Exchange Weighted price index No impact Weak impact No impact ___________________ Trading volume No impact Weak impact Weighted price index Positive impact Weak impact No impact ___________________ Trading volume Weak impact Medium impact Medium impact Real estate market Construction companies stocks prices No impact Weak impact No impact __________________ Trading volume No impact Weak Impact Construction companies stocks prices No impact Weak impact No impact __________________ Trading Volume Weak impact No impact Very weak impact

The Study Results and Findings:

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET The main findings of this study which indicate at the relationship between the Real Estate market and the stock market in Jordan are: (1) The macroeconomic factors as independent variables have the same impact on the two markets in the prices are as follows: a. There is no relationship between the changes in inflation rates and changes in the weighted price index in Amman Stock Exchange, and the prices of the construction companies stocks. This means that the prices in the two markets do not affect by these variables. b. There is a weak relationship between changes in GDP and changes in the weighted prices index of ASE, and the prices of construction companies' stocks, which means that the prices in the two markets do not respond strongly to the changes in GDP. c. There is no any relationship between the population growth and the prices in the two markets. (2) Macroeconomic variables have a similar relationship between each one of them and the trading volume in the two markets. (3) Microeconomic factors as independent variables have different impacts on the two markets either in the prices or the trading volume areas as follows. a. There is a strong positive relationship between the changes in the interest rates and the changes in the weighted price index in ASE. But there is no relationship between these changes in the interest rates and the construction companies stocks prices. b. There is a weak relationship between the changes in remittances of Jordanian expatriates and the prices in the two markets. c. There is no relationship between the rigid polices applied by the Jordanian banks and the prices in the two markets. (4) Microeconomic variables have different impacts also on the trading volume in both real estate and stock markets, as follows: a. There is a weak relationship between the changes in the interest rates and the trading volume in the two markets. b. There is medium relationship between the changes in the remittances and the trading volume in the two markets. c. There is a medium relationship between the changes in the loans volume provided by the Jordanian banks and the trading volume in the (ASE). But for the trading volume in the real estate market the relationship between the two variables is very weak. From these results we can express the relationship between the two markets by the following statements: (1) The two markets are not sensitive for the changes in the macroeconomic indicators that used in this study. (2) The stock market responds more than the real estate market to microeconomic indicators. (3) According to these results, organizations, especially those who own or manage portfolios have to depend on strategies that enable them to respond to the fluctuations in the interest rates and the prices of each component in their portfolios, and to have an active tool to avoid any high risk in their investment.

17

Suggestions Based on Research Conclusion

The study presents the following recommendations: (1) The government has a significant role in controlling the construction materials prices, which lead to

18

THE RELATIONSHIP BETWEEN THE REAL ESTATE MARKET AND THE STOCK MARKET high prices in the housing sector. (2) The investors in the housing sector must understand that there is a big difference between the demand and the ability of the Jordanian citizen in buying a house or apartment. (3) Most of the Jordanian expatriates tend to invest their money in the ASE, and this causes large fluctuations in the prices and the volume. (4) The Jordanian banks have to create new polices for financing especially in the housing loans, such as increasing the loan period.

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