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Listed real estate futures trading, market efficiency, and direct real estate linkages: International evidence

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Listed:
  • Lee, Chyi Lin
  • Stevenson, Simon
  • Cho, Hyunbum

Abstract

Futures contracts focused on listed real estate firms have increased in popularity in recent years, with strong developed markets now established in Australia, Europe, Japan, and the United States. This study builds upon what is still relatively small literature to consider two key elements. Firstly, using the approach of Bessembinder & Seguin (1992), we examine whether futures trading leads to a stabilization of listed real estate. The results show that the inception of listed real estate futures contracts does have a stabilization effect by improving the market efficiency and reducing market noise in international real estate stocks. Secondly, we assess the impact of futures trading on price discovery using a Spline-GARCH model, panel analysis, and a Granger causality test. In particular, we examine the linkages with underlying private real estate. The empirical results reveal that reduced market noise of real estate stocks via the futures trading improves the price discovery process, leading to enhanced linkages between public and private real estate, as well as market fundamentals.

Suggested Citation

  • Lee, Chyi Lin & Stevenson, Simon & Cho, Hyunbum, 2022. "Listed real estate futures trading, market efficiency, and direct real estate linkages: International evidence," Journal of International Money and Finance, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:jimfin:v:127:y:2022:i:c:s0261560622000961
    DOI: 10.1016/j.jimonfin.2022.102693
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