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Stationarity and Co-Integration in Systems with Three National Real Estate Indices

This study examines the stochastic properties of the commercial real estate wealth indices for three countries (the U.S., Canada, and the U.K.) and for several property types (aggregate, office, retail, and industrial). Each of the indices is tested for a unit root and all series are found to be nonstationary. Furthermore, all indices also indicate the presence of both drift and trend. The results are strongest when the indices are tested in real estate and exchange rate-adjusted form. Application of Johansen's model indicates that the system for the three countries shows evidence of co-integration for the aggregate, retail, office, and industrial properties. Again, the evidence is the strongest when the indices are tested in real and exchange rate-adjusted form. Hence, it is conceivable that inflationary expectations may be the factor that provides the common linkage between commercial real estate across national boundaries.

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

Volume (Year): 13 (1997)
Issue (Month): 3 ()
Pages: 369-381

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Handle: RePEc:jre:issued:v:13:n:3:1997:p:369-381
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
Web page: http://www.aresnet.org/
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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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  1. Lawrence J. Radecki & Vincent Reinhart, 1988. "The globalization of financial markets and the effectiveness of monetary policy instruments," Quarterly Review, Federal Reserve Bank of New York, issue Aut, pages 18-27.
  2. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
  3. Eichengreen, Barry, 1992. "Three Perspectives on the Bretton Woods System," Department of Economics, Working Paper Series qt8rg1h520, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  5. Bruce Kasman & Charles Pigott, 1988. "Interest rate divergences among the major industrial nations," Quarterly Review, Federal Reserve Bank of New York, issue Aut, pages 28-44.
  6. Muscatelli, Vito Antonio & Hurn, A Stan, 1992. " Cointegration and Dynamic Time Series Models," Journal of Economic Surveys, Wiley Blackwell, vol. 6(1), pages 1-43.
  7. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  9. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 175-90, June.
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