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International Volatility Transmission Of Reit Returns

Author

Listed:
  • Deqing Diane Li
  • YingChou Lin
  • John Jin

Abstract

This study examines whether volatility of REIT returns can transmit across national borders. Two competing hypotheses are proposed. The first is the Transportable Risk Hypothesis which suggests geographic risk can be transmitted overseas if the general equity and real estate securities markets are integrated internationally. The second is the Non-Transportable Risk Hypothesis which argues that geographic risk factors are country-specific and therefore not transmittable across national borders. Using GARCH and EGARCH econometric models, international spillovers of volatility of REIT returns are found among United States, United Kingdom, and Japan. The finding has major implications for formulating international portfolio strategies as it improves forecasting ability. The finding also implies that better international portfolio diversification can be achieved with real estate securities from countries that have a lower degree of integration between the real estate sector and the general stock market.

Suggested Citation

  • Deqing Diane Li & YingChou Lin & John Jin, 2012. "International Volatility Transmission Of Reit Returns," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 41-51.
    • Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:3:p:41-51
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    References listed on IDEAS

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    Cited by:

    1. Keagile Lesame & Elie Bouri & David Gabauer & Rangan Gupta, 2021. "On the Dynamics of International Real Estate Investment Trust Propagation Mechanisms: Evidence from Time-Varying Return and Volatility Connectedness Measures," Working Papers 202152, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    REIT volatility; multivariate GARCH; volatility spillovers; international portfolio diversification;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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