It is the first research to investigate for nonlinear interdependence of these two markets in the PIGS (Portugal, Italy, Greece and Spain) countries based on the quantile causality test. The results reveal the existence of the nonlinear causality relationship between the stock returns and real-estate returns in the PIGS countries.The empirical results of the quantile causality test suggest a significant causal relationship between these two markets in the PIGS countries, especially in the tail quantile. The existence of a significant tail interdependence implies that investors are unable to hedge the risk across the real-estate and stock markets when they are extremely volatile. Therefore, when there exist extreme returns between the two markets in the PIGS countries, both continuous negative impacts imply that instability in the real-estate market drives instability in the stock market and vice versa. It could be one of the major reasons why it deepened the systemic risk of the European sovereign debt crisis.
