Correlation and Volatility Dynamics in International Real Estate Securities Markets

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 ti...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2009-08, Vol.39 (2), p.202-223
Main Authors: Liow, Kim Hiang, Ho, Kim Hin David, Ibrahim, Muhammad Faishal, Chen, Ziwei
Format: Article
Language:English
Subjects:
Correlation
Correlation analysis
Diversification
Economics
Economics and Finance
Financial Services
Global funds
Hypotheses
Investments
Investors
Real estate
Regional/Spatial Science
REITs
Securities markets
Stochastic models
Stock exchange
Stock exchanges
Studies
Time
Volatility
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Summary: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.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-008-9108-4