IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v40y2013i2p293-318.html
   My bibliography  Save this article

Returns transmission, value at risk, and diversification benefits in international REITs: evidence from the financial crisis

Author

Listed:
  • Chiuling Lu
  • Yiuman Tse
  • Michael Williams

Abstract

We examine daily cross-market return interactions and downside risk between a US REIT returns index and the return indexes of twelve international REIT markets. These relationships are investigated for a period of normal REIT market conditions as well as for periods of inflating and collapsing REIT prices. We find that US REIT returns are contemporaneously correlated with other REITs most strongly during the bubble and crash market conditions where the US REIT market is an almost unilateral transmitter of returns. We also find that the Value at Risk (VaR) of the least capitalized REIT markets is proportionally higher during base/normal market conditions but that the largest REIT markets have the highest VaR contribution during the crash (financial crisis) period. Overall, our evidence indicates that REIT market risk shifted to the largest REIT markets and that diversification benefits eroded considerably during turbulent market conditions. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Chiuling Lu & Yiuman Tse & Michael Williams, 2013. "Returns transmission, value at risk, and diversification benefits in international REITs: evidence from the financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 293-318, February.
    • Handle: RePEc:kap:rqfnac:v:40:y:2013:i:2:p:293-318
    DOI: 10.1007/s11156-012-0274-3
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11156-012-0274-3
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-012-0274-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wan-Jiun Paul Chiou & Alice C. Lee & Cheng-Few Lee, 2009. "Variation in Stock Return Risks: An International Comparison," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 245-266.
    2. David Michayluk & Patrick J. Wilson & Ralf Zurbruegg, 2006. "Asymmetric Volatility, Correlation and Returns Dynamics Between the U.S. and U.K. Securitized Real Estate Markets," Published Paper Series 2006-5, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Kim Liow & Kim Ho & Muhammad Ibrahim & Ziwei Chen, 2009. "Correlation and Volatility Dynamics in International Real Estate Securities Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 39(2), pages 202-223, August.
    4. Gerlach, Richard & Wilson, Patrick & Zurbruegg, Ralf, 2006. "Structural breaks and diversification: The impact of the 1997 Asian financial crisis on the integration of Asia-Pacific real estate markets," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 974-991, October.
    5. John Cotter & Simon Stevenson, 2006. "Multivariate Modeling of Daily REIT Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 305-325, May.
    6. Ming-Long Lee & Kevin C.H. Chiang, 2004. "Substitutability between Equity REITs and Mortgage REITs," Journal of Real Estate Research, American Real Estate Society, vol. 26(1), pages 95-114.
    7. Jarl G. Kallberg & Crocker H. Liu & Paolo Pasquariello, 2002. "Regime Shifts in Asian Equity and Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(2), pages 263-291.
    8. Shaun Bond & Mardi Dungey & Renée Fry, 2006. "A Web Of Shocks: Crises Across Asian Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 253-274, May.
    9. Shuh-Chyi Doong & Sheng-Yung Yang & Thomas C. Chiang, 2005. "Response Asymmetries in Asian Stock Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 637-657.
    10. Kim Hiang Liow & James R. Webb, 2009. "Common factors in international securitized real estate markets," Review of Financial Economics, John Wiley & Sons, vol. 18(2), pages 80-89, April.
    11. John Cotter & Simon Stevenson, 2007. "Uncovering Volatility Dynamics in Daily REIT Returns," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 13(2), pages 119-128, January.
    12. Ata Assaf, 2006. "Canadian REITs and Stock Prices: Fractional Cointegration and Long Memory," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(03), pages 441-462.
    13. Chan, Yue-Cheong & Cheng, Louis T W, 2003. "Asset Allocation and Selectivity of Asian Mutual Funds during Financial Crisis," Review of Quantitative Finance and Accounting, Springer, vol. 21(3), pages 233-250, November.
    14. Bodurtha, James N, Jr & Kim, Dong-Soon & Lee, Charles M C, 1995. "Closed-End Country Funds and U.S. Market Sentiment," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 879-918.
    15. Van Eaton, R D, 1999. "Stock Price Adjustment to the Information in Dividend Changes," Review of Quantitative Finance and Accounting, Springer, vol. 12(2), pages 113-133, March.
    16. David Michayluk & Patrick J. Wilson & Ralf Zurbruegg, 2006. "Asymmetric Volatility, Correlation and Returns Dynamics Between the U.S. and U.K. Securitized Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(1), pages 109-131, March.
    17. repec:bla:jfinan:v:44:y:1989:i:1:p:1-17 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sulaiman Al-Jassar & Imad A. Moosa, 2020. "Country Effects, Industry Effects and the Effectiveness of International Diversification Within the GCC Region," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-18, January.
    2. Kim Hiang Liow & Qing Ye, 2018. "Regime dependent volatilities and correlation in international securitized real estate markets," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(3), pages 457-487, August.
    3. Mensi, Walid & Reboredo, Juan C. & Ugolini, Andrea & Vo, Xuan Vinh, 2022. "Switching connectedness between real estate investment trusts, oil, and gold markets," Finance Research Letters, Elsevier, vol. 49(C).
    4. Marfatia, Hardik A. & Gupta, Rangan & Cakan, Esin, 2017. "The international REIT’s time-varying response to the U.S. monetary policy and macroeconomic surprises," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 640-653.
    5. Huang, MeiChi & Wu, Chu-Hua & Cheng, I-Shan, 2021. "A truly global crisis? Evidence from contagion dependence across international REIT markets," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    6. Bonato, Matteo & Çepni, Oğuzhan & Gupta, Rangan & Pierdzioch, Christian, 2021. "Do oil-price shocks predict the realized variance of U.S. REITs?," Energy Economics, Elsevier, vol. 104(C).
    7. Cherif Famara Badji & Cristiane Benetti & Renato Guimaraes, 2021. "Diversification Benefits of European REIT, Equities and Bonds," Post-Print hal-03592183, HAL.
    8. Wang, Gang-Jin & Xie, Chi, 2015. "Correlation structure and dynamics of international real estate securities markets: A network perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 176-193.
    9. Yener Cos‚kun & A. Sevtap Selcuk-Kestel & Bilgi Yilmaz, 2017. "Diversification benefit and return performance of REITs using CAPM and Fama-French: Evidence from Turkey," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(4), pages 199-215, December.
    10. Benjamin Blau & Jared Egginton & Matthew Hill, 2016. "REITs and market friction," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 1-24, January.
    11. Elie Bouri & Rangan Gupta & Shixuan Wang, 2022. "Nonlinear contagion between stock and real estate markets: International evidence from a local Gaussian correlation approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2089-2109, April.
    12. Benjamin Blau & Jared F. Egginton & Matthew Hill, 2016. "REITs and market friction," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 1-24, January.
    13. Han, Yingwei & Li, Ping & Xia, Yong, 2017. "Dynamic robust portfolio selection with copulas," Finance Research Letters, Elsevier, vol. 21(C), pages 190-200.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roselyne Joyeux & George Milunovich, 2015. "Speculative bubbles, financial crises and convergence in global real estate investment trusts," Applied Economics, Taylor & Francis Journals, vol. 47(27), pages 2878-2898, June.
    2. Martin Hoesli & Kustrim Reka, 2013. "Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 1-35, July.
    3. Guojie Ma, 2016. "Corporate Behaviour and Market Integration: Evidence from the Asia-Pacific Real Estate Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2016, January-A.
    4. Liow, Kim Hiang & Huang, Yuting, 2018. "The dynamics of volatility connectedness in international real estate investment trusts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 195-210.
    5. Kim Liow & Wei Chen, 2013. "Is There Volatility Convergence in Asia-Pacific Securitized Real Estate Markets?," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 370-390, August.
    6. repec:uts:finphd:35 is not listed on IDEAS
    7. Kim Liow & Zhiwei Chen & Jingran Liu, 2011. "Multiple Regimes and Volatility Transmission in Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 42(3), pages 295-328, April.
    8. Chyi Lin Lee & Simon Stevenson & Ming‐Long Lee, 2018. "Low‐frequency volatility of real estate securities and macroeconomic risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 311-342, November.
    9. Jian Yang & Yinggang Zhou & Wai Leung, 2012. "Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 491-521, August.
    10. Kim Hiang Liow & Qing Ye, 2014. "Switching volatility and cross-market linkages in public property markets," Journal of Property Research, Taylor & Francis Journals, vol. 31(4), pages 287-314, December.
    11. Kim Hiang Liow, 2012. "Co‐movements and Correlations Across Asian Securitized Real Estate and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(1), pages 97-129, March.
    12. He, Chi-Wei & Chang, Kuang-Liang & Wang, Yung-Jang, 2020. "Does the jump risk in the US market matter for Japan and Hong Kong? An investigation on the REIT market," Finance Research Letters, Elsevier, vol. 34(C).
    13. Kim Hiang Liow, 2010. "Integration among USA, UK, Japanese and Australian securitised real estate markets: an empirical exploration," Journal of Property Research, Taylor & Francis Journals, vol. 27(4), pages 289-308, February.
    14. Walter I. Boudry & Robert A. Connolly & Eva Steiner, 2022. "What happens during flight to safety: Evidence from public and private real estate markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(1), pages 147-172, March.
    15. Liang Peng & Rainer Schulz, 2013. "Does the Diversification Potential of Securitized Real Estate Vary Over Time and Should Investors Care?," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 310-340, August.
    16. James Chong & Alexandra Krystalogianni & Simon Stevenson, "undated". "Dynamic Correlations across REIT Sub-Sectors," Real Estate & Planning Working Papers rep-wp2011-07, Henley Business School, University of Reading.
    17. Eva Steiner & Jamie Alcock, 2011. "New Evidence on asymmetric dependence in the returns from U.S. Real Estate Estate Investment Trusts," ERES eres2011_161, European Real Estate Society (ERES).
    18. Andrey Pavlov & Eva Steiner & Susan Wachter, 2018. "The Consequences of REIT Index Membership for Return Patterns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(1), pages 210-250, March.
    19. George Milunovich & Stefan Trück, 2013. "Regional and global contagion in real estate investment trusts," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 31(1), pages 53-77, February.
    20. Kim Hiang Liow & Xiaoxia Zhou & Qing Ye, 2015. "Correlation Dynamics and Determinants in International Securitized Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(3), pages 537-585, September.
    21. Kim Hiang Liow & Qing Ye, 2018. "Regime dependent volatilities and correlation in international securitized real estate markets," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(3), pages 457-487, August.

    More about this item

    Keywords

    Return transmission; International diversification; Value-at-risk; Real estate investment trust; Financial crisis; C58; G01; G11; G15;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:40:y:2013:i:2:p:293-318. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.