Quantifying Return Spillovers in Global Real Estate Markets

This study quantifies return spillovers among global real estate markets and provides new evidence on the determinants of such spillovers. We utilize a sample of 18 real estate markets covering four decades and find that the U.K. and the U.S. are the largest transmitters. In contrast, France, followed by Italy, Finland, and Ireland, are the heaviest recipients of return shocks. We notice a sharp spike and upward trend in spillovers after GFC, followed by the European sovereign debt crisis and the recent Brexit episodes. Importantly, we report that bilateral trade linkages foster pair-wise return spillovers. Our findings suggest that positive economic sentiments and bullish periods in other asset classes ease return spillovers. The presence of dynamics in return spillovers during stable and stress periods is insightful in return predictability and devising effective investment strategies. Our overall results are robust to several sensitivity checks.