Asymmetric Volatility Spillover Effects and Global Economic Conditions in REITs and non-REITs Assets: A VARMA-GARCH Approach

This study investigates the relationship between the returns and volatility of REITs and non-REITs, considering asymmetries and the impact of global economic conditions. Our sample covers the period from January 2000 to March 2024. We applied the VARMA-GARCH model to capture volatility spillovers in the respective variance equations. We also integrated the dynamic conditional correlation (DCC) option into our VARMA-GARCH (i.e., VARMA-DCC-GARCH) to account for the possibility of bias due to the time-varying correlation between the variables of interest. By utilising the standard VARMA-GARCH model and its asymmetric variant, we find strong interconnectedness between the REIT and non-REIT markets, suggesting the potential for portfolio diversification. Additionally, our findings indicate that negative shocks amplify the spillover effects of volatility between REIT and non-REIT returns more than positive shocks of the same magnitude do, highlighting the significance of asymmetries in this relationship. This study helps identify asymmetries and the extent to which they occur in the spillovers of volatility between REIT and non-REIT assets, providing policymakers and investors with evidence based on whether these alternative classes of assets are indifferent to their response to shocks that are due to bad news (negative shocks) compared to shocks that are due to good news (positive shocks). This study investigates a niche segment – the REIT and non-REIT markets. Empirical evidence is the first of its kind, especially with integrating VARMA-GARCH to capture volatility spillover effects.