Analysis Of The Asymmetric Volatility Spillovers In Real Estate Stock Returns

Investors increasingly seek to go international on real estate markets. Many studies have been carried out with respect to the benefits of such strategies for stocks and bonds, but less attention has been given to real estate stocks. The aims of this study are twofold. First, a national analysis is realized in order to evaluate the impact of the broader domestic stock market on the volatility of real estate stocks. This first part is motivated by the fact that real estate stocks are stocks by definition, even though the underlying asset is direct real estate. Second, the linkages between the world market and selected domestic real estate stock markets are studied. We focus on the three most important markets in terms of market capitalization, i.e., on those of the United States, the United Kingdom and Australia. Using daily data from 1987 to 2009, these relations are analyzed using a multivariate GARCH model. More precisely, we estimate a series of bivariate models with an asymmetric BEKK specification of the variance. It has been well documented that the stock market reacts asymmetrically to the sign of its own innovation, consequently it is of interest to verify whether this characteristic also prevails for real estate stock market contagion. Conditional correlations are also calculated from the estimates of the previous model. This paper thus contributes to a better understanding of the nature of real estate stocks and of the usefulness of international portfolio strategies.