Fractional Cointegration Analysis of Securitized Real Estate

Abstract

This paper uses fractional cointegration analysis to examine whether long-run relations exist between securitized real estate returns and three sets of variables frequently used in the literature as the factors driving securitized real estate returns. That is, we examine whether such relationships are characterized by long memory (long-range dependence), short memory (short-range dependence), mean reversion (no long-run effects) or no mean reversion (no long-run equilibrium). The forecasting implications are also considered. Empirical analyses are conducted using data for the U.S., the U.K., and Australia. We find strong evidence of fractional cointegration between securitized real estate and the three sets of variables. Such relationships are mainly characterized by short memory although long memory is sometimes present. The use of fractional cointegration for forecasting purposes proves particularly useful since the start of the financial crisis.

Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets

“…Indeed, given the underlying assets of those companies (i.e., real estate), lenders are willing to provide loans covering a large fraction of the assets' values. This asymmetry should be particularly strong in the U.S. given that real estate companies are more leveraged than those in the other two countries (Serrano and Hoesli 2010). Our results confirm these hypotheses.…”

Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets

“…real estate), lenders are willing to provide loans covering a large fraction of the assets' values. This asymmetry should be particularly strong in the U.S. given that real estate companies are much more leveraged than those in the two other countries (Serrano and Hoesli, 2009). Our results confirm these hypotheses.…”

Integration between real estate equity and non-real estate equity

“…The results suggested that each equity real estate market was co-integrated with its respective stock market and with key macroeconomic factors in the long run and that there were influences of the overall economy in the short run. In another recent study, Serrano and Hoesli (2012) employed fractional co-integration analysis to examine the long run relationship between equity real estate and three sets of economic variables (including non-real estate equity). The study found strong evidence of fractional co-integration between equity real estate and the three variables.…”