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Price and volatility dynamics between securitized real estate spot and futures markets

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  • Shi, Jing
  • Xu, Tracy

Abstract

This study is among the first to examine the price, volatility and covariance dynamics between securitized real estate spot and futures markets. It provides a distinctive and yet complementary perspective on the predictability of real estate spot return and spot volatility based on the information from the spot market alone. The results show that for the EPRA/NAREIT Europe index, the spot market tends to lead its futures market in the long run during the sample period, which can be attributed to a rather illiquid real estate futures market in sharp contrast with a voluminous spot market. Furthermore, we find the V-shaped asymmetric effect of the basis on the futures market volatility, which represents the primary channel of strong volatility transmission between securitized real estate spot and futures markets during the whole sample and the post-crisis period. This sheds light on the hedging effectiveness for the REIT index.

Suggested Citation

  • Shi, Jing & Xu, Tracy, 2013. "Price and volatility dynamics between securitized real estate spot and futures markets," Economic Modelling, Elsevier, vol. 35(C), pages 582-592.
    • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:582-592
    DOI: 10.1016/j.econmod.2013.08.003
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    References listed on IDEAS

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    Cited by:

    1. Zhou, Jian, 2016. "Hedging performance of REIT index futures: A comparison of alternative hedge ratio estimation methods," Economic Modelling, Elsevier, vol. 52(PB), pages 690-698.
    2. Lee, Chyi Lin & Stevenson, Simon & Cho, Hyunbum, 2022. "Listed real estate futures trading, market efficiency, and direct real estate linkages: International evidence," Journal of International Money and Finance, Elsevier, vol. 127(C).

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    More about this item

    Keywords

    Real estate futures; Asymmetric effect; Basis; Multivariate GARCH; Recursive cointegration analysis;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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