The Dynamic of Volatility of Pan-Asian Property Portfolio Markets

Abstract

The securitised market in Asia has become more progressive recently, especially with the introduction of Real Estate Investment Trusts (REITs). The financial crisis such Global Financial Crisis has put the Asian property market into a convenient means to invest because of their sustained economy from that crisis. Nevertheless, the Asian property market has become more complex to understand, especially for institutional investors. As such, it is important to understand the market volatility especially the Asian property market. An understanding of volatility level especially in regional market is important to determine the cost of capital as well as to detect leverage decision and investment. Significant changes in volatility will have a significant impact to property portfolio market at the regional level. With the emergence of regional and global investors in property, it is important to answer the question on the situation of Asian property portfolio markets’ volatility. Moreover, economy of each of PanAsian countries will also be assessed to show the significance of their economy development and provide information for investor’s investment strategies from the volatility level point of view. This paper will assess the volatility level of panAsian property portfolio market over the period January 2000 to December 2015 by using EGARCH model.

Volatility Spillover Effect of Pan-Asia’s Property Portfolio Markets

“…Specifically, pan-Asian countries are not just integrated within inter-countries in the form of economic activities, but are also highly correlated in macroeconomic factors, such as interest rates, inflation, consumer price index (CPI), base lending rate (BLR) and GDP. Several researchers such as [2,5,6] have investigated the high relationship of these macroeconomic factors within the pan-Asian region. Research findings from [2] also highlighted that the macroeconomic factor's conditional variance-covariances are major drivers of conditional property portfolio return volatility.…”

“…One important implication of this increased interdependence and/or joint volatility behaviour between securitised real estate and the global stock market is that global investors and country funds will have fewer opportunities for cross-asset and cross-border diversification, that a crisis will be transmitted more or faster, and that they will be much more vulnerable to domestic shocks [34]. Integration of global financial markets has been a defining characteristic of recent decades, particularly those following the late 1990's AFC [6], contributing to the development of interdependence, both in terms of return and volatility. National barriers in financial markets have been vanishing as a result of new global communication technology and the liberalisation of external economic relations, even for markets that are physically separated.…”