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Liquidity-Driven Cross-Market Linkages between Securitized REITs and Stock Markets

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  • Salman Khan

Abstract

This study examines the cross-market linkages between public real estate investment trusts (REITs) and the stock market based on multiple return and liquidity channels. We measure cross-market linkages using the multivariate generalized autoregressive conditional heteroskedasticity model (GARCH-BEKK model) with daily U.S. data from 1998 to 2015 at both market and sector level. The results suggest that U.S. REITs and the Dow Jones Industrial Index are weakly linked in returns but strongly linked in liquidities. The two additional cross-characteristic linkages, REIT return and stock market liquidity, as well as REIT liquidity and stock market return, are found to be highly significant. Our findings show that liquidity plays a critical role in determining the linkages between REITs and the stock market. The paper translates these linkages into effective hedging strategies at both the market and sectoral levels.

Suggested Citation

  • Salman Khan, 2020. "Liquidity-Driven Cross-Market Linkages between Securitized REITs and Stock Markets," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 26(1), pages 37-56, October.
    • Handle: RePEc:taf:repmxx:v:26:y:2020:i:1:p:37-56
    DOI: 10.1080/10835547.2020.1826241
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