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Switching volatility and cross-market linkages in public property markets

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  • Kim Hiang Liow
  • Qing Ye

Abstract

The primary contribution of this study is to examine the changes in cross-market relationship in international public property markets from a volatility regime switching perspective from January 1990 to January 2012. We find that global developed public property markets can be adequately characterised by a SWARCH model. In particular, most of the persistence in real estate stock price volatility can be attributed to the persistence of low-, medium- and high-volatility regimes in international developed public property markets. Moreover, there is a significant volatility increase during the crises periods for all markets examined. However, the identified high-volatility regime appears short-lived. Based on the SWARCH results, we find that the dynamic linkages among the markets are positively dependent on volatility regime. Specifically, the market correlations, foreign market influence, aggregate variance spillover index and variance-covariance matrix have intensified as market volatility increases during this period. Moreover, the evolution of the cross-market linkages among the sample public property markets is influenced significantly by both a time trend and a volatility regime factor that are independent of the influences of the global stock market and national stock markets. Our results imply that risk-reduction via international diversification in public property markets may only hold true in low-volatility periods. Consequently, portfolio managers need to understand and implement volatility state-dependent optimal asset allocation in order to better advise their clients.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:jpropr:v:31:y:2014:i:4:p:287-314
    DOI: 10.1080/09599916.2013.870921
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    References listed on IDEAS

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    1. 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.
    2. Wang, Ping & Theobald, Mike, 2008. "Regime-switching volatility of six East Asian emerging markets," Research in International Business and Finance, Elsevier, vol. 22(3), pages 267-283, September.
    3. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
    4. Li, Ming-Yuan Leon & Lin, Hsiou-Wei William, 2003. "Examining the Volatility of Taiwan Stock Index Returns Via a Three-Volatility-Regime Markov-Switching ARCH Model," Review of Quantitative Finance and Accounting, Springer, vol. 21(2), pages 123-139, September.
    5. Diamandis, Panayiotis F., 2008. "Financial liberalization and changes in the dynamic behaviour of emerging market volatility: Evidence from four Latin American equity markets," Research in International Business and Finance, Elsevier, vol. 22(3), pages 362-377, September.
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    Cited by:

    1. 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.
    2. Kim Hiang Liow & Qing Ye, 2017. "Switching Regime Beta Analysis of Global Financial Crisis: Evidence from International Public Real Estate Markets," Journal of Real Estate Research, Taylor & Francis Journals, vol. 39(1), pages 127-164, January.

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