Does listed real estate behave like direct real estate: updated and broader evidence

The aim of this study is to add to the knowledge on the question of whether listed real estate returns reflect direct real estate returns or general stock market returns. Relative to the extant literature on the topic, we make several contributions in addition to using more recent data: (1) we use data for six countries (U.K., France, Germany, and the Netherlands for Europe, and the U.S and Australia for the rest of the world); (2) we estimate both country-specific and panel models to increase the reliability and generalizability of the analysis; (3) we estimate structural vector autoregressive and structural vector error-correction models to be able to better and more reliably interpret the various shocks in the model; and (4) we analyze the influence of the planned investment horizon on the correlation structures between listed real estate, direct real estate, and equity in the six markets. In addition to the listed and direct real estate and stock market indices, we incorporate in the analysis a number of fundamental variables that are expected to influence and have been found to affect real estate and stock returns significantly and that can be utilized to identify the structural (i.e., more reliably identifiable) economic shocks. We also control for the leverage of listed investments.