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

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10051.pdf Non-technical SummaryThis paper analyzes long-run co-movements between 14 international real estate stock markets and between three economic and geographic regions based on bivariate and multivariate tests for 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. Additionally, the detected cointegration relationships are much stronger between national markets within one economic and geographic region than between national markets located in different regions.Thus, from an investor's point of view, the results indicate that broadening the investment horizon from the domestic continent to others regional markets might be more beneficial than diversifying within one region. This conclusion applies particularly to the European real estate stock markets and thus to investors holding European real estate securities.-II - it is also shown that most cointegration relationships are unstable and that the results from cointegration methodologies suggested by Engle and Granger (1987) and Johansen (1988) might be misleading in that common long-run comovements appear to be stronger when structural breaks are considered. Thus, the results indicate that investors would benefit from broadening their investment horizon from their domestic continent to international markets. This particularly applies for the European securitized real estate markets. Das Wichtigste in Kürze

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“…The correlation coefficient is a practice usual measurement of stock market co-movements of stock returns in a given time period, and is widely exploited by the literature (Longin and Solnik, 1995;Hassan and Naka, 1996;Longin and Solnik, 2001;Karolyi and Stulz, 2003;Walti, 2005;Schindler and Voronkova, 2010). The correlation coefficient is a practice usual measurement of stock market co-movements of stock returns in a given time period, and is widely exploited by the literature (Longin and Solnik, 1995;Hassan and Naka, 1996;Longin and Solnik, 2001;Karolyi and Stulz, 2003;Walti, 2005;Schindler and Voronkova, 2010).…”

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