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Did the Recent Financial Crisis Impact Integration between the Real Estate and Stock Markets?

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  • Kimberly Luchtenberg
  • Michael Seiler

Abstract

We examine linkages between the real estate market and the stock market before and after the delisting of Lehman Brothers to determine if the recent financial crisis had an effect on the degree of integration between them. Using Granger causality tests, vector autoregression (VAR) models, and state space models, we find that real estate returns subsequently influence stock market returns, a unique result when compared to past financial crises, but consistent with recent findings of increased systematic risk in real estate investment trusts (REITs). We also find that some estimated transaction-based geographic/property type indices were less integrated with the stock market, which indicates that pure property indices may provide better portfolio diversification in the event of a real estate-related stock market downturn. These tests were made possible through the employment of a new daily transaction-based commercial real estate return series.

Suggested Citation

  • Kimberly Luchtenberg & Michael Seiler, 2014. "Did the Recent Financial Crisis Impact Integration between the Real Estate and Stock Markets?," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 20(1), pages 1-20, January.
    • Handle: RePEc:taf:repmxx:v:20:y:2014:i:1:p:1-20
    DOI: 10.1080/10835547.2014.12089960
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