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Time-varying correlation between stock market returns and real estate returns

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  • Heaney, Richard
  • Sriananthakumar, Sivagowry

Abstract

Direct investment in commercial or residential real estate is found to provide valuable diversification benefits for Australian investors though this is not so evident for indirect real estate investment vehicles like listed Australian real estate investment trusts (A-REIT). Further, multivariate analysis of Australian real estate and share market quarterly returns, spanning the period from the 3rd quarter 1986 to the 3rd quarter 2009, suggest that the correlation between real estate returns and share market returns is time-varying. Finally, while all of the asset class correlation coefficients increased with the Global Financial Crisis period this broad movement in asset class correlation is not evident in during the Wall Street Crash of 1987.

Suggested Citation

  • Heaney, Richard & Sriananthakumar, Sivagowry, 2012. "Time-varying correlation between stock market returns and real estate returns," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 583-594.
    • Handle: RePEc:eee:empfin:v:19:y:2012:i:4:p:583-594
    DOI: 10.1016/j.jempfin.2012.03.006
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    More about this item

    Keywords

    Real estate; Share market returns; DCC IGARCH(1; 1) model; Time-varying conditional correlations;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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