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Spillovers between US Real Estate and Financial Assets in Time and Frequency Domains

Author

Listed:
  • Aviral Kumar Tiwari

    (Montpellier Business School, 2300, Avenue des Moulins, 34185, Montpellier Cedex 4 0002, France)

  • Christophe Andre

    (Economics Department, Organisation for Economic Co-operation and Development (OECD), 75775 Paris, Cedex 16, France)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

Abstract

Real estate, either in physical or securitised form, provides valuable diversification opportunities to investors. However, spillovers reduce the benefits of portfolio diversification, especially in times of crisis, when asset returns tend to be more correlated. This paper assesses the strength and time variation of spillovers between returns on residential real estate, real estate investment trusts (REITs), stocks and bonds in the United States, using the Diebold-Yilmaz (DY) (2012) approach in the time domain and the Baruník-Křehlík (BK) (2018) methodology in the frequency domain. On average, spillovers between housing, stock and bond returns are relatively modest and shocks to stock and bond markets affect housing returns more than the other way round, even though net spillovers from housing to other assets spiked in the aftermath of the subprime crisis. Spillovers in both directions are much stronger between REITs and stocks than between REITs and housing. The analysis in the frequency domain highlights the persistence of effects from shocks originating in the housing market, particularly in the aftermath of the subprime crisis.

Suggested Citation

  • Aviral Kumar Tiwari & Christophe Andre & Rangan Gupta, 2019. "Spillovers between US Real Estate and Financial Assets in Time and Frequency Domains," Working Papers 201947, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201947
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    References listed on IDEAS

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    Cited by:

    1. Krittika Banerjee & Ashima Goyal, 2020. "Monetary spillovers and real exchange rate misalignments in emerging markets," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(2), pages 452-484, October.
    2. Salisu, Afees A. & Gupta, Rangan & Bouri, Elie, 2023. "Testing the forecasting power of global economic conditions for the volatility of international REITs using a GARCH-MIDAS approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 303-314.
    3. Bonato, Matteo & Çepni, Oğuzhan & Gupta, Rangan & Pierdzioch, Christian, 2021. "Do oil-price shocks predict the realized variance of U.S. REITs?," Energy Economics, Elsevier, vol. 104(C).
    4. Cepni, Oguzhan & Dul, Wiehan & Gupta, Rangan & Wohar, Mark E., 2021. "The dynamics of U.S. REITs returns to uncertainty shocks: A proxy SVAR approach," Research in International Business and Finance, Elsevier, vol. 58(C).
    5. Wang, Peiwan & Zong, Lu, 2020. "Contagion effects and risk transmission channels in the housing, stock, interest rate and currency markets: An Empirical Study in China and the U.S," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    6. Le, TN-Lan & Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar, 2021. "Time and frequency domain connectedness and spill-over among fintech, green bonds and cryptocurrencies in the age of the fourth industrial revolution," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    7. Bossman, Ahmed & Umar, Zaghum & Agyei, Samuel Kwaku & Junior, Peterson Owusu, 2022. "A new ICEEMDAN-based transfer entropy quantifying information flow between real estate and policy uncertainty," Research in Economics, Elsevier, vol. 76(3), pages 189-205.

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    More about this item

    Keywords

    Real estate; Stocks; Bonds; Spillovers; Portfolio management;
    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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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