Time-Varying Correlations of REITs and Implications for Portfolio Management

Anderson, Jackson T.; Anderson, Randy I.; Guirguis, Hany; Proppe, Spencer; Seiler, Michael J.

doi:10.1080/08965803.2021.1985921

Cited by 6 publications

(5 citation statements)

References 28 publications

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“…The degree of correlation across Turkish REITs may be due to less stringency in dividend payment, which may support Turkish REITs during this economic instability period. However, Anderson et al (2021) argued that the correlation degree among REITs increases during the financial crisis. Their conclusion is support most especially among Turkish REITs prices but not among Turkish REITs returns during COVID-19 pandemic.…”

Section: Volatility Results Based On Different Return Estimation Appr...mentioning

confidence: 99%

Performance evaluation and volatility of Turkey REITs during COVID-19 pandemic

Salami

Tanrıvermiş

2022

JPIF

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PurposeThis study aims to examine the performance and volatility of Turkey Real Estate Investment Trusts (Turkish REITs) as the world is adjusting to the new normal situation in every aspect of REITs' business activities.Design/methodology/approachThe prices of REITs were acquired from 26 Turkish REITs in this study, but owing to autocorrelation difficulties, 14 Turkish REITs were employed in the analysis. The ten-year long-term bond of the Turkish Government was also utilized and the period of data obtained was based on availability. The performance of Turkish REITs was evaluated using Sharpe's ratio and Treynor's ratio, and the volatility was assessed using MGARCH-BEKK.FindingsThe authors found out that Turkish REITs are constantly underperforming and the REITs' returns remain highly volatile and persistent. In addition, findings showed evidence of volatility clustering and the asymmetric impact of shocks. This study further revealed the uniqueness of each of the Turkish REITs due to the lack of evidence of multicollinearity.Research limitations/implicationsHowever, the limitation of this study is the constraint in obtaining more macro-economic variables of more than ten-years of Turkey's Government bond and the study focused mainly on Turkish REITs.Practical implicationsThe result suggests that since Turkish REITs are not mandatory to payout 90% of taxable earnings as dividends, high performance and an appropriate risk management approach are expected. The need for timely revealing performance of T-REITs and associated uncertainty may trigger better performance as discussed in the relationship between disclosure and performance which is recently emphasized in a recent study by Koelbl (2020). With current performance and associated uncertainty in Turkish REITs, the need to protect Turkish REITs investors is highly essential. The result further educates REIT investors that diversification benefits of REITs tend to reduce in extremely risky situations.Originality/valueThis is the first study in the context of Turkish REITs that comprehensively integrated market capitalization of REITs and simultaneous evaluation of performance and the volatility of the Turkish REITs as the world adjusts to the new normal.

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Section: Volatility Results Based On Different Return Estimation Appr...mentioning

confidence: 99%

Performance evaluation and volatility of Turkey REITs during COVID-19 pandemic

Salami

Tanrıvermiş

2022

JPIF

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“…Yu et al (2019) investigate volatility spillover among stocks, bonds, foreign exchange and commodities in the US, EU, UK, Japan and China, while Kim and Yang (2008) test the impact of price limits on intra‐day volatility and information asymmetry in Taiwan. Studies focusing on REITs include volatility or return transmissions between REITs and stock markets (Case et al, 2012; Hoesli & Reka, 2013; Yang et al, 2012), between REITs and bond markets (Chong et al, 2009) and among EREITs, MREITs, equity and bond markets (Anderson et al, 2021; Chiang et al, 2017) among others.…”

Section: Review Of Relevant Literaturementioning

confidence: 99%

“…Chong et al (2009) employ the DCC‐GARCH model and find strongly negative DCC between REITs and the bond markets. In a four‐asset (EREITs, MREITs, equity and bond markets) system, Anderson et al (2021) use bivariate DCC and find structural shifts in EREITs' and MREITs' returns.…”

Section: Review Of Relevant Literaturementioning

confidence: 99%

“…However, the performance of illiquid real estate assets is also mainly dependent on macroeconomic fundamentals. The fact that REITs are heavily tied to the underlying direct real estate markets makes REITs' returns, particularly the predictable component, more sensitive to real estate fundamentals and macroeconomic shocks relative to common stocks (Anderson et al, 2021; Hoesli & Oikarinen, 2016; Karolyi & Sanders, 1998; Lee et al, 2008). These findings are re‐affirmed by Lee et al (2018), who find that the low‐frequency volatility of REITs is more sensitive and strongly positively related to macroeconomic risks (proxied by the volatility of interest rates, inflation rate, GDP, foreign exchange and M2 money) than stocks.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Transitory and permanent shock transmissions between real estate investment trusts and other assets: Evidence from time‐frequency decomposition and machine learning

Ngene

Wang

2023

Accounting & Finance

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We evaluate asset returns and volatility connectedness using the time‐frequency connectedness model and machine learning approaches. Using 48 years of monthly indices of equity real estate investment trusts (EREITs), mortgage real estate investment trusts (MREITs), stocks, commodities, and bonds, we find that shocks to EREIT, and MREIT returns have a transitory impact on other assets. However, asset volatility connectedness among assets occurs at lower frequencies as markets slowly process pricing information. Therefore, shocks to EREIT and MREIT decay gradually and spill over to the other three assets for long periods. We also find that the intensity of the time‐frequency connectedness of returns and volatility varies with business cycles and significant domestic and global non‐recession events. We attribute the dominance of real estate investment trusts (REITs) in destabilising the financial system through long‐term volatility transmission to the heavy linkage of REITs to highly illiquid underlying direct real estate markets and high REITs leverage, making them more sensitive to real estate fundamentals, monetary shocks and macroeconomic risks than stocks and bonds. The result of the algorithm‐based machine learning model broadly supports the dominance of EREITs in the transmission of returns and volatility and shows that commodities have more explanatory power in the transmission of volatility than in returns. The empirical findings have implications for strategic and tactical asset allocation and policy design for market stability.

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“…Commercial real estate provides an ideal setting in which to examine how asset liquidity relates to macroeconomic uncertainty and returns predictability. Importantly, real estate assets are well known to be sensitive to macroeconomic factors (Ling and Naranjo, 1997;Plazzi, Torous, and Valkanov, 2008;Anderson, Anderson, Guirguis, Proppe, and Seiler, 2021). Moreover, two parallel markets exist -one publicly traded and the other directly held -where the primary differentiating characteristic is liquidity.…”

Section: Introductionmentioning

confidence: 99%