Analysing bank real estate portfolio management by using impulse response function, Mahalanobis distance and financial turbulence

During the financial crisis that had its peak a few years ago, one of the interesting questions was raised. Does there exist a possibility that the aforementioned crisis will repeat. As real estate management took one of the key roles in the post-crisis period, it was expected that the lessons that crisis brought with itself, were learnt. Despite lagging effect that the aforementioned turbulence had on Western Europe, real estate prices kept rising and exhibited accelerating growth, although some of the countries didn’t react to the stock price movement and real estate growth. This paper will try to address the aforementioned problem by analysing real estate portfolio management by using impulse response function. Afterwards, it will try to implement results obtained from Impulse response function and financial turbulence, by calculating possible correlations between stock prices for EURO area and real estate prices in Germany, Switzerland and Austria. Data was taken from St.Louis FED database. In order to analyse banking portfolio management, it was assumed that state of the art methods are used. Portfolio management is modelled by using Mahalanobis distance and financial turbulence index was analysed. As financial turbulence index was calculated for the total real estate share prices by taking the data from St. Louis FED database, interesting results were obtained. It was proved that real estate prices kept rising in Germany and Switzerland despite the warning foreshadowed by the financial crisis, however Austria real estate prices remained stable. However growth in real estate prices in Switzerland was not caused by financial crisis because the growth is constant and doesn’t have any drops.Financial turbulence analysis pointed out that the volatility of real estate prices in the aforementioned countries was highest in the mid2011 and it still has a high value. This indicates that real estate price bubble is a real threat to the whole financial system of Western Europe, especially Germany as the leading economy. © 2015 The Authors. Published by Elsevier B.V. * Corresponding author. Tel.:+38163553559; E-mail address: [email protected] © 2015 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of IISES-International Institute for Social and Economics Sciences. 933 Ognjen Vukovic / Procedia Economics and Finance 30 ( 2015 ) 932 – 938