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An assessment of the relationship between public real estate markets and stock markets at the local, regional, and global levels

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  • Liow, Kim Hiang
  • Schindler, Felix

Abstract

The primary contribution of this study is to assess whether public real estate markets and stock markets are linked at the local, regional, and global levels, and to assess the evolution of their dynamic relationship and gradual integration during the last two decades. For individual pairs of real estate and stock markets, our analysis shows that the current levels of local, regional, and global correlation between real estate and stock markets are time-varying and are, at most, moderate at the respective integration levels. The real estate and stock markets are both contemporaneously and causally linked in their returns and volatilities; however the causality relationship appears weaker. In the long run, the real estate markets have slowly become more integrated with the global and regional stock markets; while less integrated with the local stock markets. In addition, the extracted common factors allow for a direct assessment of the dynamic relationships between the real estate and stock markets as a group, and thereby complement the individual results. Finally, there appears to be a declining real estate and stock return dispersion and differential at the local, regional, and global levels for all nine economies, indicating a tendency of return convergence between real estate and stock market in an international environment. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 11-056.

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Date of creation: 2011
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Handle: RePEc:zbw:zewdip:11056

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Keywords: Time-Varying Integration; Return and Volatility Causality; Multivariate Asymmetric DCC-GARCH; Return Convergence; Securitized Real Estate Markets; International Stock Markets;

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  1. Caporale, Guglielmo Maria & Pittis, Nikitas & Spagnolo, Nicola, 2002. "Testing for Causality-in-Variance: An Application to the East Asian Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(3), pages 235-45, July.
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  3. Sheng-Yung Yang, 2005. "A DCC analysis of international stock market correlations: the role of Japan on the Asian Four Tigers," Applied Financial Economics Letters, Taylor and Francis Journals, Taylor and Francis Journals, vol. 1(2), pages 89-93, March.
  4. Fujii, Eiji, 2005. "Intra and inter-regional causal linkages of emerging stock markets: evidence from Asia and Latin America in and out of crises," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 15(4), pages 315-342, October.
  5. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
  6. Tak-Kee Hui, 2005. "Portfolio diversification: a factor analysis approach," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(12), pages 821-834.
  7. Angelos Kanas, 2002. "Mean and Variance Causality between Official and Parallel Currency Markets: Evidence from Four Latin American Countries," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 37(2), pages 137-163, 05.
  8. Liow, Kim Hiang & Webb, James R., 2009. "Common factors in international securitized real estate markets," Review of Financial Economics, Elsevier, Elsevier, vol. 18(2), pages 80-89, April.
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