Correlation and Volatility Dynamics in International Real Estate Securities Markets

Abstract

We study international correlation and volatility dynamics of publicly traded real estate securities using monthly returns from 1984 and 2006. We also examine, for comparison, the correlations among the corresponding stock markets. A multivariate dynamic conditional correlation model captures the time-varying correlation within the full period. We confirm lower correlations between all real estate securities market returns than those between the stock market returns themselves. Some significant variations and structural changes in the correlation structure happened within the sample period. We detect a strong and positive connection between real estate securities market correlations and their conditional volatilities. We also find the international correlation structure of real estate securities and the broader stock market are linked to each other. Our results have economic motivations regarding the potential integration of international real estate securities markets and the possibility of including information on changing correlations and volatilities to design more optimal portfolios for international real estate securities.

Correlation structure and dynamics of international real estate securities markets: A network perspective

“…Michayluk et al [14] design an asymmetric covariance model to analyze the time-varying correlations between US and UK securitized real estate markets in the period 2000-2003, while Goorah [15] uses copula methods to examine the correlation structure between the two real estate securities markets during the period 1990-2007. Liow et al [16] employ the dynamic conditional correlation (DCC)-GJR-GARCH model to study the correlation structure and dynamics of international real estate securities markets including five developed markets (US, UK, Japan, Hong Kong, and Singapore). Case et al [17] analyze the correlation dynamics between US publicly traded real estate investment trusts (REITs) stocks and non-REITs stocks based on the DCC-GARCH model.…”

Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets

“…While a few recent studies use the DCC model of Engle (2002) to explore correlation dynamics in the real estate literature (e.g., Liow et al, 2009;Yavas and Yildirim, 2009;Case, Yang, and Yildirim, 2009), little research has been done to explore the asymmetric conditional correlation dynamics, with the notable exception of Michayluk, Wilson and Zurbruegg (2006). Nevertheless, the Asymmetric Dynamic Covariance model (though flexible) used in Michayluk, Wilson and Zurbruegg (2006) may involve numerous parameters, thereby requiring more data points for efficient estimation and thus encountering serious challenges and difficulties in estimating a higher-dimension system.…”

Can we predict the property cycle? A study of securitized property market

“…markets has been confirmed in Ref. [28], it is necessary to detect the cointegrating relationships with time-varying feature. Therefore, we employ the recursive estimation in the cointegration analysis, which has an advantage of revealing the dynamic cointegrating relationship among the six markets.…”

“…Refs. [21,27]), and correlations between securitized property markets around world [28]. Since such co-movements reflect the common trends and influences on the local market who conforms to the common trends.…”