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Commercial Real Estate and Equity Market Bubbles: Are They Contagious to REITs?

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  • Ogonna Nneji
  • Chris Brooks
  • Charles Ward

Abstract

This paper uses a regime-switching approach to determine whether prices in the US stock, direct real estate and indirect real estate markets are driven by the presence of speculative bubbles. The results show significant evidence of the existence of periodically partially collapsing speculative bubbles in all three markets. A multivariate bubble model is then developed and implemented to evaluate whether the stock and real estate bubbles spill over into REITs. The underlying stock market bubble is found to be a stronger influence on the securitised real estate market bubble than that of the property market. Furthermore, the findings suggest a transmission of speculative bubbles from the direct real estate to the stock market, although this link is not present for the returns themselves.

Suggested Citation

  • Ogonna Nneji & Chris Brooks & Charles Ward, 2013. "Commercial Real Estate and Equity Market Bubbles: Are They Contagious to REITs?," Urban Studies, Urban Studies Journal Limited, vol. 50(12), pages 2496-2516, September.
    • Handle: RePEc:sae:urbstu:v:50:y:2013:i:12:p:2496-2516
    DOI: 10.1177/0042098013477700
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    References listed on IDEAS

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    Cited by:

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    2. Petre Caraiani & Adrian C. Călin & Rangan Gupta, 2021. "Monetary policy and bubbles in US REITs," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 675-687, June.
    3. Helen X. H. Bao & Steven Haotong Li, 2020. "Investor Overconfidence and Trading Activity in the Asia Pacific REIT Markets," JRFM, MDPI, vol. 13(10), pages 1-21, September.
    4. An-Ming Wang, 2016. "Agglomeration and simplified housing boom," Urban Studies, Urban Studies Journal Limited, vol. 53(5), pages 936-956, April.
    5. Devaney, Steven & Xiao, Qin, 2017. "Cyclical co-movements of private real estate, public real estate and equity markets: A cross-continental spectrum," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 132-151.
    6. Bell, Adrian R. & Brooks, Chris & Killick, Helen, 2022. "The first real estate bubble? Land prices and rents in medieval England c. 1300–1500," Research in International Business and Finance, Elsevier, vol. 62(C).
    7. Chang, Guang-Di & Cheng, Po-Ching, 2016. "Evidence of cross-asset contagion in U.S. markets," Economic Modelling, Elsevier, vol. 58(C), pages 219-226.
    8. Huerta-Sanchez, Daniel & Jafarinejad, Mohammad & Kim, Dongshin & Soyeh, Kenneth W., 2020. "Disentangling bubbles in equity REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 357-367.
    9. Shu-hen Chiang, 2016. "Rising residential rents in Chinese mega cities: The role of monetary policy," Urban Studies, Urban Studies Journal Limited, vol. 53(16), pages 3493-3509, December.
    10. Kwangwon Ahn & Hanwool Jang & Jinu Kim & Inug Ryu, 2024. "COVID-19 and REITs Crash: Predictability and Market Conditions," Computational Economics, Springer;Society for Computational Economics, vol. 63(3), pages 1159-1172, March.

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