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The Integration of Commercial Real Estate Markets and Stock Markets

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Author Info
David C. Ling
Andy Naranjo
Abstract

This paper tests whether commercial real estate markets (both exchange-traded and non-exchange-traded) are integrated with stock markets using multifactor asset pricing models. The results support the hypothesis that the market for exchange-traded real estate companies, including REITs, is integrated with the market for exchange-traded (non-real-estate) stocks. Moreover, the degree of integration has significantly increased during the 1990s. However, when appraisal-based returns (adjusted for smoothing) are used to construct real estate portfolio returns, the results fail to support the integration hypothesis, although this may reflect the inability of these estimated private market returns to accurately proxy for commercial real estate returns. Interestingly, the growth rate in real per capita consumption is consistently priced in both commercial real estate markets and stock markets, whereas previous studies have found mixed evidence on the role of consumption in explaining "ex ante" stock returns. Copyright American Real Estate and Urban Economics Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00781
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Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 27 (1999)
Issue (Month): 3 ()
Pages: 483-515
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Handle: RePEc:bla:reesec:v:27:y:1999:i:3:p:483-515

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  1. Kim Liow & Kim Ho & Muhammad Ibrahim & Ziwei Chen, 2009. "Correlation and Volatility Dynamics in International Real Estate Securities Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 39(2), pages 202-223, August. [Downloadable!] (restricted)
  2. Cotter, John & Stevenson, Simon, 2005. "Multivariate Modeling of Daily REIT Volatility," MPRA Paper 3524, University Library of Munich, Germany. [Downloadable!]
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  3. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 2008. "The Inflation Hedging Characteristics of US and UK Investments: A Multi-Factor Error Correction Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 183-206, February. [Downloadable!] (restricted)
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  4. James Payne & George Waters, 2007. "Have Equity REITs Experienced Periodically Collapsing Bubbles?," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 207-224, February. [Downloadable!] (restricted)
  5. Kim Liow & Haishan Yang, 2005. "Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 31(3), pages 283-300, November. [Downloadable!] (restricted)
  6. Elias Oikarinen, 2006. "Price Linkages between Stock, Bond and Housing Markets - Evidence from Finnish Data," Discussion Papers 1004, The Research Institute of the Finnish Economy. [Downloadable!]
  7. Cotter, John & Stevenson, Simon, 2004. "Uncovering Volatility Dynamics in Daily REIT Returns," MPRA Paper 3533, University Library of Munich, Germany, revised 2005. [Downloadable!]
  8. Colin Lizieri & Stephen Satchell & Qi Zhang, 2006. "The Underlying Return Generating Factors for REIT Returns: An Application of Independent Component Analysis," Real Estate & Planning Working Papers rep-wp2006-12, Henley Business School, Reading University. [Downloadable!]
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