Volatility causality and contagion in international securitized real estate markets

2018 ◽  
Vol 11 (2) ◽  
pp. 244-168 ◽  
Author(s):  
KimHiang Liow ◽  
Qing Ye
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Portfolio Management ◽  
Real Estate Market ◽  
Market Volatility ◽  
Content Type ◽  
Real Estate Markets ◽  
The Us ◽  
High Volatility ◽  
Empirical Investigations

Purpose This paper aims to investigate volatility causality and return contagion on nine international securitized real estate markets by appealing to Markov-switching (MS) regime approach, from July 1992 to June 2014. Design/methodology/approach An MS causality interaction model (Psaradakis et al., 2005), an MS vector auto-regression mode (Krolzig, 1997) and a multivariate return contagion model (Dungey et al., 2005) were used to implement the empirical investigations. Findings There exist regime shifts in the volatility causality pattern, with the volatility causality effects more pronounced during high volatility periods. During high volatility period, real estate markets’ causality interactions and inter-linkages contribute to strong spillover effect that leads to extreme volatility. However, there is relatively limited return contagion evidence in the securitized real estate markets examined. As such, the US financial crisis might probably be due to cross-market interdependence rather than contagion. Research limitations/implications Because international investors incorporate into their portfolio allocation not only the long-run price relationship but also the short-run market volatility connectedness and return correlation structure, the results of this MS causality and contagion study have provided valuable information on the evaluation of regime-dependent securitized real estate market risk, as well as useful guidance on asset allocation and portfolio management decisions for institutional investors. Practical implications Financial crisis is one of the key determinants of cross-market volatility interactions. Portfolio managers should be alerted of the observation that the US and the other developed securitized real estate markets are increasingly sharing “common market cycles” in recent years, thereby diminishing the diversification benefits. For policymakers, this research indicates that the volatilities of the US securitized real estate market could be helpful to predict those of other developed markets. It is also important for them to pay attention to those potential risk factors behind the amplified causality, contagion and volatility spillover at times of crisis. Finally, a wider implication for policymakers is to manage the transmission channels through which global stock market return and volatility shocks can affect the local economies and domestic financial markets, including securitized real estate markets. Originality/value Real estate investments have emerged to show low correlation with stocks and bonds and contributed to portfolio optimization. With real estate that can serve as a type of consumption commodity and an investment tool, the risk-return profile of real estate is different from that of the underlying stock markets. Therefore, the performance and investment dynamics and real estate-stock link are not theoretically expected to be similar, that requires separate empirical investigations. This paper aims to stand out from the many papers on the same or similar topics in the application of the three MS methodologies to regime-dependent real estate market integration.

The dynamics of return co-movements and volatility spillover effects in Greater China public property markets and international linkages

2014 ◽  
Vol 32 (6) ◽  
pp. 610-641 ◽  
Author(s):  
Kim Hiang Liow
Keyword(s):  
Real Estate ◽  
Spillover Effects ◽  
Real Estate Market ◽  
Market Volatility ◽  
Volatility Spillover ◽  
Content Type ◽  
Real Estate Markets ◽  
Volatility Spillovers ◽  
Public Property ◽  
Property Markets

Purpose – The purpose of this paper is to examine weekly dynamic conditional correlations (DCC) and vector autoregressive (VAR)-based volatility spillover effects within the three Greater China (GC) public property markets, as well as across the GC property markets, three Asian emerging markets and two developed markets of the USA and Japan over the period from January 1999 through December 2013. Design/methodology/approach – First, the author employ the DCC methodology proposed by Engle (2002) to examine the time-varying nature in return co-movements among the public property markets. Second, the author appeal to the generalized VAR methodology, variance decomposition and the generalized spillover index of Diebold and Yilmaz (2012) to investigate the volatility spillover effects across the real estate markets. Finally, the spillover framework is able to combine with recent developments in time series econometrics to provide a comprehensive analysis of the dynamic volatility co-movements regionally and globally. The author also examine whether there are volatility spillover regimes, as well as explore the relationship between the volatility spillover cycles and the correlation spillover cycles. Findings – Results indicate moderate return co-movements and volatility spillover effects within and across the GC region. Cross-market volatility spillovers are bidirectional with the highest spillovers occur during the global financial crisis (GFC) period. Comparatively, the Chinese public property market's volatility is more exogenous and less influenced by other markets. The volatility spillover effects are subject to regime switching with two structural breaks detected for the five sub-groups of markets examined. There is evidence of significant dependence between the volatility spillover cycles across stock and public real estate, due to the presence of unobserved common shocks. Research limitations/implications – Because international investors incorporate into their portfolio allocation not only the long-term price relationship but also the short-term market volatility interaction and return correlation structure, the results of this study can shed more light on the extent to which investors can benefit from regional and international diversification in the long run and short-term within and across the GC securitized property sector, with Asian emerging market and global developed markets of Japan and USA. Although it is beyond the scope of this paper, it would be interesting to examine how the two co-movement measures (volatility spillovers and correlation spillovers) can be combined in optimal covariance forecasting in global investing that includes stock and public real estate markets. Originality/value – This is one of very few papers that comprehensively analyze the dynamic return correlations and conditional volatility spillover effects among the three GC public property markets, as well as with their selected emerging and developed partners over the last decade and during the GFC period, which is the main contribution of the study. The specific contribution is to characterize and measure cross-public real estate market volatility transmission in asset pricing through estimates of several conditional “volatility spillover” indices. In this case, a volatility spillover index is defined as share of total return variability in one public real estate market attributable to volatility surprises in another public real estate market.

A post-global financial crisis (GFC) framework for strategic planning, assessment and management decision making for US sustainable commercial real estate

2017 ◽  
Vol 35 (6) ◽  
pp. 589-618 ◽  
Author(s):  
Pernille Hoy Christensen
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Real Estate ◽  
Performance Indicators ◽  
Institutional Investors ◽  
Global Financial Crisis ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Content Type ◽  
Sustainability Initiatives

Purpose The purpose of this paper is to understand both the facts and the values associated with the breadth of issues, and the principles related to sustainable real estate for institutional investors. Sustainable real estate is a growing sector within the commercial real estate industry, and yet, the decision-making practices of institutional investors related to sustainability are still not well understood. In an effort to fill that gap, this research investigates the post-global financial crisis (GFC) motivations driving the implementation of sustainability initiatives, the implementation strategies used, and the predominant eco-indicators and measures used by institutional investors. Design/methodology/approach This paper presents the results of a three-round modified Delphi study conducted in the USA in 2011-2012 investigating the nature of performance measurements and reporting requirements in sustainable commercial real estate and their impact on the real estate decision-making process used by institutional investors. Two rounds of in-depth interviews were conducted with 14 expert panelists. An e-questionnaire was used in the third round to verify qualitative findings. Findings The key industry drivers and performance indicators influencing institutional investor decision making were associated with risk management of assets and whether initiatives can improve competitive market advantage. Industry leaders advocate for simple key performance indicators, which is in contrast to the literature which argues for the need to adopt common criteria and metrics. Key barriers to the adoption of sustainability initiatives are discussed and a decision framework is presented. Practical implications This research aims to help industry partners understand the drivers motivating institutional investors to uptake sustainability initiatives with the aim of improving decision making, assessment, and management of sustainable commercial office buildings. Originality/value Building on the four generations of the sustainability framework presented by Simons et al. (2001), this research argues that the US real estate market has yet again adjusted its relationship with sustainability and revises their framework to include a new, post-GFC generation for decision making, assessment, and management of sustainable real estate.

Real estate development in the city of Athens during the financial crisis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maria Nikitidou ◽  
Fragiskos Archontakis ◽  
Athanasios Tagkalakis
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Structural Characteristics ◽  
House Prices ◽  
Real Estate Market ◽  
Structural Factors ◽  
Data Set ◽  
Content Type ◽  
Capital Financing ◽  
The City

Purpose This study aims to determine how the prices of residential properties in the Greek real estate sector are affected by their structural characteristics and by the prevailing economic factors during recession. Design/methodology/approach Based on 13,835 valuation reports for the city of Athens, covering a period of 11 years (2006–2016), this study develops a series of econometric models, taking into account both structural characteristics of the property market and the macroeconomic relevant variables. Finally, the city of Athens is divided into sub-regions and the different effects of the structural factors in each area are investigated via spatial analysis confirming the validity of the baseline model. Findings Findings show that the size, age, level, parking and storage space can explain the property price movements. Moreover, the authors find evidence that it is primarily house demand variables (e.g. the annual average wage, the unemployment rate, the user cost of capital, financing constraints and expectations about the future course of the house market) that affect house prices in a statistically significant manner and with the correct sign. Finally, using a difference-in-differences approach, this study finds that an increase in house demand (on account of net migration) led to higher house prices in smaller and older than in larger and younger apartments in areas with high concentration of immigrants. Originality/value This study uses a novel data set to help entities, individuals and policy-makers to understand how the recent economic and financial crisis has affected the real estate market in Athens.

Return and co-movement of major public real estate markets during global financial crisis

2017 ◽  
Vol 35 (5) ◽  
pp. 489-508 ◽  
Author(s):  
Kim Hiang Liow ◽  
Shao Yue Angela
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Global Financial Crisis ◽  
Content Type ◽  
Real Estate Markets ◽  
The Public ◽  
Movement Dynamics ◽  
The Usa ◽  
Short Run ◽  
Practical Implications

Purpose The purpose of this paper is to investigate the volatility spectral of five major public real estate markets, namely, the USA, the UK, Japan (JP), Hong Kong (HK), and Singapore (SG), during the pre- and post-global financial crisis (GFC) periods. Design/methodology/approach First, univariate spectral analysis is concerned with discovering price cycles for the respective real estate markets. Second, bivariate cross-spectral analysis seeks to uncover whether any two real estate price series share common cycles with regard to their relative magnitudes and lead-lag patterns of the cyclical variations. Finally, to test the contagion effects, the authors estimate the exact percentage change in co-spectral density (cyclical covariance) due to high frequencies (short run) after the GFC. Findings The authors find that whilst none of the public real estate markets examined are spared from the crisis, the three Asian markets were less severely affected by the GFC and were accompanied by a reversal in volatility increase three years post-global financial crisis. Additionally, the public real estate markets studied have become more cyclically linked in recent years. This is particularly true at longer frequencies. Finally, these increased cyclical co-movements measure the outcomes of contagion and indicate fairly strong contagious effects between the public real estate markets examined due to the crisis. Research limitations/implications The implication of this research is that benefits to investors from international real estate diversification may not be as great during the present time compared to previous periods because national public real estate markets have become more correlated. Nevertheless, the findings do not imply the complete absence of diversification benefits. This is because although cyclical correlations increase in the short run, many of the correlation values are still between low and moderate range, indicating that some diversification benefits may still be realized. Practical implications Given the significant market share and the highest levels of securitization in Asia-Pacific markets including JP, HK/China, and SG, this cyclical research including major public real estate markets has practical implications for ongoing international real estate investment strategies, particularly for the USA/UK and Asian portfolio managers. Originality/value This paper contributes to the limited research on the cyclical return and co-movement dynamics among major public real estate markets during financial/economic crisis in international finance. Moreover, the frequency-domain analysis conducted in this paper adds to better understanding regarding the impact of GFC on the cyclical return volatility and co-movement dynamics of major developed public real estate markets in international investing.

scholarly journals The changing real estate market transparency in the European real estate markets

2016 ◽  
Vol 34 (4) ◽  
pp. 407-420 ◽  
Author(s):  
Graeme Newell
Keyword(s):  
Decision Making ◽  
Real Estate ◽  
Real Estate Market ◽  
Real Estate Investment ◽  
Content Type ◽  
Real Estate Markets ◽  
Market Transparency ◽  
Global Context ◽  
Business Competitiveness ◽  
Risk Dimensions

Purpose – Real estate market transparency is an important factor in real estate investment and occupier decision making. The purpose of this paper is to assess real estate transparency over 2004-2014 to determine whether the European real estate markets have become more transparent in a regional and global context. Design/methodology/approach – Using the JLL real estate transparency index over 2004-2014, changes in real estate market transparency are assessed for 102 real estate markets. This JLL real estate market transparency index is also assessed against corruption levels and business competitiveness in these markets. Findings – Improvements in real estate transparency are clearly evident in many European real estate markets, with several of these European real estate markets seen to be the major improvers in transparency from a global real estate markets perspective. Practical implications – Institutional investors and occupiers see real estate market transparency as a key factor in their strategic real estate investment and occupancy decision making. By assessing changes in real estate transparency across 102 real estate markets, investors and occupiers are able to make more informed real estate investment decisions across the global real estate markets. In particular, this relates to both investors and occupiers being able to more fully understand the risk dimensions of their international real estate decisions. Originality/value – This paper is the first paper to assess the dynamics of real estate market transparency over 2004-2014, with a particular focus on the 33 European real estate markets in a global context to facilitate more informed real estate investment and occupancy decision making.

Global financial crisis and cyclical co-movements of Asian financial markets

2016 ◽  
Vol 34 (5) ◽  
pp. 465-495 ◽  
Author(s):  
KimHiang Liow
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Financial Markets ◽  
Frequency Domain ◽  
Stock Markets ◽  
Global Financial Crisis ◽  
Short Term ◽  
Content Type ◽  
Real Estate Markets ◽  
Asset Classes

Purpose – The purpose of this paper is to investigate the cross-spectra of stock, real estate and bond of ten selected Asian economies in the pre- and post-global financial crisis periods to detect whether there is greater cyclical co-movement post-financial crisis, and whether any observed increased co-movement measures the outcomes of contagion or integration. Design/methodology/approach – Co-spectral approach is the proper econometric tool to deliver economic insight for this research. Findings – Results indicate that Asian stock markets, and to a lesser degree, bond and real estate markets are more correlated post-financial crisis. Similarly, Asian financial markets have experienced increased co-movements with the US financial markets post-financial crisis. Moreover, these observed increased co-movements measure the outcomes of contagion in some cases of within-asset and cross-asset classes, as well as for some cross-US-Asian asset factor relationships along the high-frequency components of between two and four weeks. The stock markets are the most contagious, followed by the real estate markets and bond markets. Research limitations/implications – The results provide short-term investors with additional co-movement information at higher frequencies in order to identify short-term fluctuations of different asset classes. The empirical study also underscores the role of Asian real estate in investment portfolios in a mixed real estate, stock and bond context from a frequency domain perspective. Practical implications – The practical implication of this research is that benefits to investors from international diversification may not be as great during the present time compared to previous periods because financial/asset market movements have become more correlated. However, it does not imply the complete absence of diversification benefits. This is because although cyclical correlations increase in the short run, many of the values are still between low and moderate range, indicating that some diversification benefits may still be realized. Originality/value – In advancing the body of knowledge in international financial markets, this research is probably the first study to consider a multi-asset class portfolio context that includes stock, real estate and bond across the ten Asian economies and the USA in a single study. The frequency domain analysis conducted in this paper adds to the understanding of real estate, stock and bond market co-movement, integration and contagion dynamics, as well as the Asian cross-asset factor and US-Asian asset factor relationships in global mixed-investing environment.

scholarly journals A dynamic model for housing price spillovers with an evidence from the US and the UK markets

2018 ◽  
Vol 2 (1) ◽  
pp. 70-81 ◽  
Author(s):  
Alper Ozun ◽  
Hasan Murat Ertugrul ◽  
Yener Coskun
Keyword(s):  
New York ◽  
Real Estate ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Housing Markets ◽  
Content Type ◽  
Real Estate Markets ◽  
Country Level ◽  
The Us

Purpose The purpose of this paper is to introduce an empirical model for house price spillovers between real estate markets. The model is presented by using data from the US-UK and London-New York housing markets over a period of 1975Q1-2016Q1 by employing both static and dynamic methodologies. Design/methodology/approach The research analyzes long-run static and dynamic spillover elasticity coefficients by employing three methods, namely, autoregressive distributed lag, the fully modified ordinary least square and dynamic ordinary least squares estimator under a Kalman filter approach. The empirical method also investigates dynamic correlation between the house prices by employing the dynamic control correlation method. Findings The paper shows how a dynamic spillover pricing analysis can be applied between real estate markets. On the empirical side, the results show that country-level causality in housing prices is running from the USA to UK, whereas city-level causality is running from London to New York. The model outcomes suggest that real estate portfolios involving US and UK assets require a dynamic risk management approach. Research limitations/implications One of the findings is that the dynamic conditional correlation between the US and the UK housing prices is broken during the crisis period. The paper does not discuss the reasons for that break, which requires further empirical tests by applying Markov switching regime shifts. The timing of the causality between the house prices is not empirically tested. It can be examined empirically by applying methods such as wavelets. Practical implications The authors observed a unidirectional causality from London to New York house prices, which is opposite to the aggregate country-level causality direction. This supports London’s specific power in the real estate markets. London has a leading role in the global urban economies residential housing markets and the behavior of its housing prices has a statistically significant causality impact on the house prices of New York City. Social implications The house price co-integration observed in this research at both country and city levels should be interpreted as a continuity of real estate and financial integration in practice. Originality/value The paper is the first research which applies a dynamic spillover analysis to examine the causality between housing prices in real estate markets. It also provides a long-term empirical evidence for a dynamic causal relationship for the global housing markets.

Interdependence dynamics of corporate equity and public real estate markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kim Hiang Liow ◽  
Jeongseop Song
Keyword(s):  
Real Estate ◽  
Real Estate Market ◽  
Asset Markets ◽  
Asset Market ◽  
Volatility Spillover ◽  
Market Conditions ◽  
Policy Makers ◽  
Content Type ◽  
Real Estate Markets ◽  
Causal Dependence

PurposeWith growing interdependence between financial markets, the goal of this paper is to examine the dynamic interdependence between corporate equity and public real estate markets for the USA and a select group of seven European developed economies under a cross-country framework in crisis and boom market conditions. Dynamic interdependence is related to four measures of market linkages of “correlation, spillover, connectedness and causality”.Design/methodology/approachThis study adopts a four-step investigation. The authors first estimate “time-varying variance–covariance spillovers and implied correlations” modeled with the bivariate BEKK-MGARCH methods. Second, the methods of Diebold and Yilmaz (2012, 2014) measure the conditional volatility spillover-connectedness effects across the corporate equity and public real estate markets based on a decomposition of the forecast error variance. Third, the authors implement nonlinear bivariate and multivariate causality tests to understand the lead-lag dynamics of the two asset markets' returns, volatilities and net directional volatility connectedness across different sample periods. Finally, the authors conclude the study by providing a portfolio hedging analysis.FindingsThe authors find that corporate equity and public real estate are moderately interdependent to the extent that their diversification benefits increases in the longer term. Moreover, the authors find increased corporate equity-public real estate causal dependence of the market groups of the European and international portfolios during the GFC and INTERCRISIS periods. The nonlinear causality test findings indicate that the joint information of asset markets can be a useful source of prediction for future innovation of market risks. Additionally, policy makers may also be able to employ conditional volatility and volatility connectedness as two other measures to manage market stability in the cross-asset market dependence during highly volatile periods.Research limitations/implicationsOne major take away from this academic research is since international portfolio investors are not only concerned the long-term price relationship but also the correlation structure and volatility spillover-connectedness, the conditional BEKK modeling, generalized risk connectedness analysis and nonlinear causal dependence explorations from this multi-country study can shed fresh light on the nature of market interdependence and magnitude of volatility connectedness effects in a multi-portfolio framework.Practical implicationsThe hedging performance analysis for portfolio diversification and risk management indicates that industrial stocks (“pure” equities) are valuable assets that can improve the hedging performance of a well-diversified corporate equity-public real estate portfolio during crisis periods. For policymakers, the findings provide important information about the nature of causal links and predictability during the crisis and asset-market boom periods. They can then equip with this information to manage and coordinate market stability in cross corporate equity-real estate relationships effectively.Originality/valueAlthough traditional research has in general reported at least a moderate degree of relationship between the two asset markets, investors' knowledge of stock-public real estate market linkage is somewhat inadequate and confine mostly to broad stocks (i.e. stocks that are exposed to public real estate influence) in a single-country context. In this paper, the authors examine the interdependence dynamics in a multi-country (multi-portfolio) context. A clear understanding their changing market relationships in a multi-country context is of crucial importance for portfolio investors, financial institutions and policy makers. Moreover, since the authors use an orthogonal stock market index, the authors allow global investors to understand the potential diversification benefits from stock markets that are beyond the public real estate market under different market conditions.

Transparency in the German real estate market

2005 ◽  
Vol 23 (1) ◽  
pp. 90-108 ◽  
Author(s):  
Karl‐Werner Schulte ◽  
Nico Rottke ◽  
Christoph Pitschke
Keyword(s):  
Real Estate ◽  
Real Estate Market ◽  
International Standards ◽  
Real Estate Industry ◽  
Content Type ◽  
Real Estate Markets ◽  
Current State ◽  
The Usa ◽  
Private And Public ◽  
The Uk

PurposeGerman real estate markets used to show little transparency in the past. This has changed over the last 15 years. The purpose of this study therefore is to examine the current state of transparency.Design/methodology/approachThe study investigates and discusses the concept of transparency in general, availability of private and public market data, major real estate investment products, performance measurement, changes in the regulatory environment and the emergence of organizations and publications. The findings of this study are obtained in a comparative manner: The transparency status of the 1990s in the different areas researched is compared to the current German and other international standards. The authors describe the relatively opaque German real estate market as it was at the beginning of the 1990s and show how it has improved to date.FindingsThe results show that transparency in the German real estate market has noticeably improved in all researched areas. But still, compared with the USA or the UK, the German real estate industry and real estate market still lack transparency and are characterized by information asymmetries and opaqueness.Originality/valueThe results indicate that the German real estate market and industry become more mature and bit by bit converge with their US and UK archetype.

Underlying asset liquidity, heterogeneously informed investors, and REITs excess returns

2014 ◽  
Vol 40 (1) ◽  
pp. 72-96
Author(s):  
Chia-Wu Lu ◽  
Tsung-Kang Chen ◽  
Hsien-Hsing Liao
Keyword(s):  
Panel Data ◽  
Real Estate ◽  
Information Asymmetry ◽  
Real Estate Market ◽  
Excess Returns ◽  
Underlying Asset ◽  
Content Type ◽  
Heterogeneous Information ◽  
Real Estate Markets ◽  
Asset Liquidity

Purpose – Real estate investment trust (REIT) stocks are well known for limited management discretion in investment, financing, and payout policies, implying little information asymmetry between informed and uninformed investors. Besides, due to the renowned illiquidity and complexity of physical real estate markets, investors may be heterogeneously informed. The authors aim to investigate these arguments using REIT panel data from 1993 to 2010. Design/methodology/approach – The authors simultaneously investigate the effects of heterogeneous information (PSOS) and information asymmetry (ADJPIN) on REIT excess returns by estimating panel data regressions controlling for both firm- and time-fixed effects. Findings – The results confirm that heterogeneous information (PSOS) is significantly and positively associated with REIT excess returns while information asymmetry (ADJPIN) is insignificant when controlling for other variables well known for affecting REIT excess returns. Originality/value – The effects of information asymmetry (ADJPIN) and heterogeneous information (PSOS) on REITs excess returns are rarely simultaneously discussed in the related literature, especially from the perspectives of limited managerial discretions, regulated dividend policy, and underlying asset liquidity (physical real estate markets). The results confirm the heterogeneous information arguments. Besides, the heterogeneous information (PSOS) effects become stronger when leverage and dividend yield are higher. Finally, the above effects of PSOS and ADJPIN on REIT excess returns are also robust during the real estate market growth period (2001-2008).

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