Global Property Market Diversification

Abstract

Diversification, Real Estate, Global, Portfolio, Cointegration,

Linkages Between International Securitized Real Estate Markets: Further Evidence from Time-Varying and Stochastic Cointegration

“…While the topic has been analyzed by previous studies such as Gallo and Zhang (2009) In line with previous studies, the empirical results indicate several cointegration relationships between national real estate stock markets. However, it is shown that most cointegration relationships are unstable and time-varying and that the results from cointegration methodologies suggested by Engle and Granger (1987) and Johansen (1988) might be misleading in that common long-run co-movements are time-varying and are much stronger when structural breaks are considered.…”

“…Table 4 presents the test statistic from the Engle and Granger (1987) bivariate cointegration tests for the US and other markets. Considering the sample period, we find no cointegration between the two neighboring real estate stock markets in North America, even though, the economy of the two countries is strongly linked and previous studies conducted by Gallo and Zhang (2009) and Schindler (2010) detected common stochastic trends and stable long-run relationships. However, the studies differ by sample period, by methodology, and by the real estate indices.…”

“…The findings from previous analysis of long-run co-movement between Asian real estate markets are mixed. While Garvey et al (2001) find limited cointegration between Asia securitized real estate markets, more recent studies conducted by Gallo and Zhang (2009) as well as Schindler (2009bSchindler ( , 2010 find much stronger evidence of long-run co-movement between Asian real estate markets which is in support of the hypothesis that the markets have become more developed for the last two decades and thus, more integrated. *** , ** , and * indicate the rejection of the null hypothesis of a unit root at the 1 %-, 5 %-, and 10 %-level of significance.…”

“…By applying the cointegration methodology suggested by Johansen (1988), More recent studies are conducted by Gallo andZhang (2009), Schindler (2010), and Yunus (2009). These studies cover a longer time period and more markets from around the world, from regions such as Asia-Pacific, Europe, and North America.…”

“…These studies cover a longer time period and more markets from around the world, from regions such as Asia-Pacific, Europe, and North America. Gallo and Zhang (2009) inter-country relationships suggest strong country enhancements to regional diversification gains. Gallo and Zhang (2009) show that a portfolio consisting of independent markets outperforms a portfolio consisting of cointegrated markets, albeit the former portfolio fails to achieve lower risk and thus seems to be under-diversified.…”