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Extreme Dependence between Public Real Estate and Stock Markets: Some Asia-Pacific Evidence

Author

Listed:
  • Kim Hiang Liow

    () (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117566)

  • Zhuo Lee

    () (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117566)

Abstract

The main contribution of this study is to examine the extreme dependence between the real estate securities and stock markets in Australia, China, Hong Kong, Japan, Malaysia, the Philippines, Singapore and Taiwan between January 1995 and March 2011. For each market, we derive time series tail dependence coefficients (TDC) which measure how likely financial returns move in extreme market conditions by using the dynamic conditional correlation (DCC) methodology provided by Engle (2002). Overall, our results indicate that Singapore, the Philippines and Hong Kong have the highest extreme real estate¡Vstock market co-movement of at least 50%. In addition, during the global financial crisis (GFC) period, the securitized real estate and common stock markets in China, Hong Kong, Japan, the Philippines and Singapore displayed the highest extreme dependence to react together to financial turmoil. The results in this paper also show that the extreme dependence patterns of real estate-stock markets are similar for many of the Asia-Pacific economies. Finally, correlation coefficients are not adequate for explaining extreme co-movements between the securitized real estate and common stock markets in the longer period, as well as in the two-year GFC periods. Our TDC modeling with Asia-Pacific securitized real estate and stock markets provide useful information and advice to international investors and risk management personnel in tactical asset allocation so as to manage the extreme dependence between securitized real estate and common stock markets.

Suggested Citation

  • Kim Hiang Liow & Zhuo Lee, 2013. "Extreme Dependence between Public Real Estate and Stock Markets: Some Asia-Pacific Evidence," International Real Estate Review, Asian Real Estate Society, vol. 16(2), pages 147-165.
  • Handle: RePEc:ire:issued:v:16:n:02:2013:p:147-165
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    Keywords

    Extreme dependence; Tail dependence coefficient; Dynamic conditional correlation; Correlation coefficient; Securitized real estate markets; Stock markets;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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