Macro-Economic and Financial Determinants of Comovement across Global Real Estate Security Markets

Whilst there is a large literature to have examined both diversification and contagion issues across global listed real estate markets, only a limited amount of research has considered the drivers of correlation dynamics. Using both local and U.S. Dollar denominated returns, we model conditional correlations across listed real estate sectors and also with the global stock market. The empirical results find that financial factors, such as the relationship with the respective equity market, volatility, the relative size of the real estate sector and trading turnover all play an important role in the degree of co-movement present. Furthermore, the results highlight the importance of macro-economic variables in the relationships observed. The results also highlight key differences when considering the correlation dynamics across listed real estate markets or with the global stock market.