Asymmetric volatility transmission and hedging strategies among REIT, stock, and oil markets

• Published in: Australian economic papers 2023-12, Vol.62 (4), p.597-615
• Main Authors: Mensi, Walid, Jiang, Zhuhua, Vo, Xuan Vinh, Yoon, Seong‐Min
• Format: Article
• Language: English
• Subjects: asymmetric volatility transmission; Commodity markets; crude oil; Expected returns; Hedging; Petroleum; Petroleum industry; Portfolios; REIT; REITs; Securities markets; Specification; Stochastic models; stock; Stocks; Volatility
• ISSN: 0004-900X; 1467-8454
• DOI: 10.1111/1467-8454.12323

How do price fluctuations in the real estate investment trust (REIT) market relate to price fluctuations in other financial markets, such as the stock and commodity markets? In order to grasper this topic, we examine the transmission of shocks and volatility spillover among the REIT, stock, and oil markets using a trivariate asymmetric GARCH model with BEKK specification. The empirical results indicate that there exists shock transmission from REIT to the oil markets and from the stock market to both the oil and REIT markets. The results also show that the volatility of the REIT market is transmitted to both oil and stock markets. Conditional correlations among the volatility of these markets are dynamic and crisis‐sensitive. The correlations are positive between the volatility of stock and both REIT and oil markets. However, equity investors should be more interested in adding REIT assets to equity portfolios than oil futures to minimise risk, without reducing expected returns.