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Random Walks and Market Efficiency: Evidence from International Real Estate Markets

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Author Info

  • Robert T. Kleiman

    ()
    (York University, Toronto, Ontario M3J 1P3)

  • James E. Payne

    ()
    (Eastern Kentucky University, Richmond, KY 40475)

  • Anandi P. Sahu

    ()
    (Oakland University, Rochester, MI 48309)

Abstract

This study performs tests of the random walk hypothesis for international commercial real estate markets utilizing stock market indices of real estate share prices for three geographical regions: Europe, Asia and North America. The augmented Dickey-Fuller and Phillips-Perron unit root tests and Cochrane variance ratio test find that each of these markets (as well as associated broader stock markets) exhibits random walk behavior. Moreover, a non-parametric runs test provides support for weak-form market efficiency in the real estate markets. In addition, Johansen-Juselius co-integration analysis reveals that all three markets appear co-integrated and share a common long-run stochastic trend. Results of co-integration analyses and vector error correction models suggest that diversification benefits through international real estate securities can only be achieved in the short run.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol24n03/04.279_298.pdf
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Bibliographic Info

Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 24 (2002)
Issue (Month): 3 ()
Pages: 279-298

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Handle: RePEc:jre:issued:v:24:n:3:2002:p:279-298

Contact details of provider:
Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Web page: http://www.aresnet.org/

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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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  1. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
  2. Urrutia, Jorge L, 1995. "Tests of Random Walk and Market Efficiency for Latin American Emerging Equity Markets," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 18(3), pages 299-309, Fall.
  3. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
  4. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  5. Campbell, John Y & Mankiw, N Gregory, 1987. "Permanent and Transitory Components in Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 77(2), pages 111-17, May.
  6. repec:fth:calaec:13-89 is not listed on IDEAS
  7. Bradford Case & William N. Goetzmann & K. Geert Rouwenhorst, 2000. "Global Real Estate Markets - Cycles and Fundamentals," NBER Working Papers 7566, National Bureau of Economic Research, Inc.
  8. Dwyer, Gerald Jr. & Wallace, Myles S., 1992. "Cointegration and market efficiency," Journal of International Money and Finance, Elsevier, vol. 11(4), pages 318-327, August.
  9. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
  10. Sephton, Peter S. & Larsen, Hans K., 1991. "Tests of exchange market efficiency: fragile evidence from cointegration tests," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 561-570, December.
  11. Graeme Newell & James R. Webb, 1996. "Assessing Risk for International Real Estate Investments," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 103-116.
  12. Richards, Anthony J., 1995. "Comovements in national stock market returns: Evidence of predictability, but not cointegration," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 631-654, December.
  13. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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Cited by:
  1. John Gallo & Ying Zhang, 2010. "Global Property Market Diversification," The Journal of Real Estate Finance and Economics, Springer, vol. 41(4), pages 458-485, November.
  2. Cotter, John & Stevenson, Simon, 2007. "Modeling Long Memory in REITs," MPRA Paper 3500, University Library of Munich, Germany.
  3. Chen, Shyh-Wei & Shen, Chung-Hua, 2012. "Examining the stochastic behavior of REIT returns: Evidence from the regime switching approach," Economic Modelling, Elsevier, vol. 29(2), pages 291-298.
  4. Kim Liow, 2009. "Long-term Memory in Volatility: Some Evidence from International Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 39(4), pages 415-438, November.
  5. Thomas C. Chiang & Hooi Hooi Lean & Wing-Keung Wong, 2008. "Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 1(1), pages 1-40, December.
  6. Sanjay Rajagopal & Patrick Hays, 2012. "Return Persistence in the Indian Real Estate Market," International Real Estate Review, Asian Real Estate Society, vol. 15(3), pages 283-305.
  7. James Payne & Hassan Mohammadi, 2004. "The transmission of shocks across real estate investment trust (REIT) markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(17), pages 1211-1217.

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