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Dynamic correlations between REIT sub-sectors and the implications for diversification

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  • James Chong
  • Alexandra Krystalogianni
  • Simon Stevenson

Abstract

The issue of whether Real Estate Investment Trusts (REITs) should pursue a focused or diversified investment strategy remains an ongoing debate within both the academic and industry communities. This article considers the relationship between REITs focused on different property sectors in a Generalized Autoregressive Conditional Heteroscedasticity-Dynamic Control Correlation (GARCH-DCC) framework. The daily conditional correlations reveal that since 1990 there has been a marked upward trend in the coefficients between US REIT sub-sectors. The findings imply that REITs are behaving in a far more homogeneous manner than in the past. Furthermore, the argument that REITs should be focused in order that investors can make the diversification decision is reduced.

Suggested Citation

  • James Chong & Alexandra Krystalogianni & Simon Stevenson, 2012. "Dynamic correlations between REIT sub-sectors and the implications for diversification," Applied Financial Economics, Taylor & Francis Journals, vol. 22(13), pages 1089-1109, July.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:13:p:1089-1109
    DOI: 10.1080/09603107.2011.639735
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