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Frequency Space Correlation Between REITs and Capital Market Indices

Several studies have examined real estate investment trust (REIT) co-movement with stocks or bonds using traditional time domain based methods, such as linear regression or correlation. Results of these studies have produced inconsistent statistical model parameters. The erratic behavior of the models may have resulted from the different time periods in the studies, the REITs included in a study or the market indices. Another factor contributing to the variation of the models comes from the compression of cyclical information over a study?s time period by time domain based techniques. Cross-spectral analysis provides a frequency space method of examining the coherency (i.e., frequency space correlation) between two time series across all frequencies. This article contains an examination of the coherency between REITs and stock market indices and REITs and U.S. Treasury debt indices for the period 1989-95. Results of the coherency spectra show significant co-movement between REITs and stock market indices, while debt instruments show very few frequencies with significant coherency. Furthermore, phase spectra provide evidence of contemporaneous movement between REITs and stock indices at all frequencies.

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

Volume (Year): 16 (1998)
Issue (Month): 3 ()
Pages: 291-310

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Handle: RePEc:jre:issued:v:16:n:3:1998:p:291-310
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. Joseph Gyourko & Donald B. Keim, . "What Does the Stock Market Tell Us About Real Estate Returns? (Revision of 18-91) (Reprint 030)," Rodney L. White Center for Financial Research Working Papers 11-92, Wharton School Rodney L. White Center for Financial Research.
  2. Jun Han & Youguo Liang, 1995. "The Historical Performance of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 10(3), pages 235-262.
  3. John D. Martin & Douglas O. Cook, 1991. "A Comparison of the Recent Performance of Publicly Traded Real Property Portfolios and Common Stock," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(2), pages 184-212.
  4. Knif, Johan & Pynnonen, Seppo & Luoma, Martti, 1995. "An analysis of lead-lag structures using a frequency domain approach: Empirical evidence from the Finnish and Swedish stock markets," European Journal of Operational Research, Elsevier, vol. 81(2), pages 259-270, March.
  5. Liu, Crocker H & Mei, Jianping, 1992. "The Predictability of Returns on Equity REITs and Their Co-movement with Other Assets," The Journal of Real Estate Finance and Economics, Springer, vol. 5(4), pages 401-18, December.
  6. Joseph Gyourko & Donald B. Keim, 1992. "What Does the Stock Market Tell Us About Real Estate Returns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(3), pages 457-485.
  7. Lynne B. Sagalyn, 1990. "Real Estate Risk and the Business Cycle: Evidence from Security Markets," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 203-220.
  8. A. F. Herbst & D. D. Kare & S. C. Caples, 1989. "Hedging effectiveness and minimum risk hedge ratios in the presence of autocorrelation: Foreign currency futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(3), pages 185-197, 06.
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