Common Stochastic Volatility in International Real Estate Market
DOI:
https://doi.org/10.6000/1929-7092.2014.03.10Keywords:
Real Estate Investment, Volatility, Stochastic Variance.Abstract
This study examined the real estate markets of Europe, North America, and Asia using daily continental real estate indices. It applied a multivariate stochastic volatility model to analyze the behavior of volatility trends in these markets. The results showed comovements in volatilities, especially between Europe and North America, as indicated by high degrees of correlation of their respective stochastic trend components. However, the impact of this common trend varies in these markets, especially for the early period of the sample. For the later period of the sample, the derived volatility trend indicated volatility convergence among them. It might imply that the role of emerging market such as Asia in diversifying real estate investment risk was not as significant as showed in early studies and is diminishing overtime.References
Asabere, Paul K., Robert Kleiman, and Carl McGowan. 1991. “The Risk-Return Attributes of International Real Estate Equities.” Journal of Real Estate Research 6(2): 143-152.
Cunningham, Rose and Ilan Kolet. 2007. “Housing Market Cycles and Duration Dependence in United States and Canada.” Bank of Canada, Working Papers.
Diebold, Francis X. and Marc Nerlove. 1989. “The Dyanamics of Exchange Rate Volatility: A Multivariate Latent Factor ARCH Model.” Journal of Applied Econometrics 4(1): 1-21.
http://dx.doi.org/10.1002/jae.3950040102
Eichholtz, Piet, Ronald Huismann, Kees Koedijk, and Lisa Schuin. 1998. “Continental Factors in International Real Estate Returns.” Real Estate Economics 26(3): 493-509.
http://dx.doi.org/10.1111/1540-6229.00754
Engle, Robert F. 1987. “Multivariate GARCH with Factor Structures: Cointegration in Variance.” University of California at San Diego, Department of Economics, Working Paper.
Gerlach, Richard, Patrick Wilson, and Ralf Zurbruegg. 2006. “Structural Breaks and Diversification: The Impact of the 1997 Asian Financial Crisis on the Integration of Asia-Pacific Real Estate Markets.” Journal of International Money and Finance 25: 974-991.
http://dx.doi.org/10.1016/j.jimonfin.2006.07.002
Harvey, Andrew, Esther Ruiz, and Neil Shephard. 1994. “Multivariate Stochastic Variance Model.” The Review of Economic Studies 61(2): 247-264.
http://dx.doi.org/10.2307/2297980
Koopman, Siem J., Andrew C. Harvey, Jurgen A. Doornik, and Neil Shephard. 2000. STAMP: Structural Time Series Analyser, Modeller, and Predictor. London: Timberlake Consultant Press.
Ling, David C. and Andy Naranjo. 2002. “Commercial Real Estate Return Performance: A Cross-Country Analysis.” Journal of Real Estate Finance and Economics 24(1-2): 119-142.
http://dx.doi.org/10.1023/A:1013938506550
Lo, Andrew W. and Jiang Wang. 1995. “Implementing Option Pricing Models When Asset Returns are Predictable.” Journal of Finance 50: 87-129.
http://dx.doi.org/10.1111/j.1540-6261.1995.tb05168.x
Liow, Kim H. 2007. “The Dynamics of Return Volatility and Systematic Risk in International Real Estate Security Markets.” Journal of Property Research 24(1): 1–29.
http://dx.doi.org/10.1080/09599910701297663
Liu, Crocker. H. and Jianping Mei. 1998. “The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences.” Real Estate Economics 26(1): 3-39.
http://dx.doi.org/10.1111/1540-6229.00736
Lizieri, Colin, Patrick McAllister, and Charles Ward. 2003. “Continental Shift? An Analysis of Convergence Trends in European Real Estate Equities.” Journal of Real Estate Research 25(1): 1-21.
McAllister, Patrick and Colin Lizieri. 2006. “Monetary Integration and Real Estate Markets: The Impact of Euro on European Real Estate Equities.” Journal of Property Research 23(4): 281–303.
http://dx.doi.org/10.1080/09599910601095266
McMillan, David G. 2001. “Common Stochastic Volatility Trend in European Exchange Rates.” Applied Economics Letters 8(9): 605-608.
http://dx.doi.org/10.1080/13504850010023099
Pindyck, Robert S. 1999. “The Long-Run Evolution of Energy Prices.” The Energy Journal 20(2): 1-27.
http://dx.doi.org/10.5547/ISSN0195-6574-EJ-Vol20-No2-1
Wilson, Patrick and Ralf Zurbruegg. 2003. “Can Large Economies Drive International Real Estate Markets?” Pacific Rim Property Research Journal 9(4): 379-397.
Yunus, Nafeesa and Peggy E. Swanson. 2007. “Modeling Linkages between US and Asia-Pacific Securitized Property Markets.” Journal of Property Research 24(2): 95–122.
http://dx.doi.org/10.1080/09599910701439992
Cunningham, Rose and Ilan Kolet. 2007. “Housing Market Cycles and Duration Dependence in United States and Canada.” Bank of Canada, Working Papers.
Diebold, Francis X. and Marc Nerlove. 1989. “The Dyanamics of Exchange Rate Volatility: A Multivariate Latent Factor ARCH Model.” Journal of Applied Econometrics 4(1): 1-21.
http://dx.doi.org/10.1002/jae.3950040102
Eichholtz, Piet, Ronald Huismann, Kees Koedijk, and Lisa Schuin. 1998. “Continental Factors in International Real Estate Returns.” Real Estate Economics 26(3): 493-509.
http://dx.doi.org/10.1111/1540-6229.00754
Engle, Robert F. 1987. “Multivariate GARCH with Factor Structures: Cointegration in Variance.” University of California at San Diego, Department of Economics, Working Paper.
Gerlach, Richard, Patrick Wilson, and Ralf Zurbruegg. 2006. “Structural Breaks and Diversification: The Impact of the 1997 Asian Financial Crisis on the Integration of Asia-Pacific Real Estate Markets.” Journal of International Money and Finance 25: 974-991.
http://dx.doi.org/10.1016/j.jimonfin.2006.07.002
Harvey, Andrew, Esther Ruiz, and Neil Shephard. 1994. “Multivariate Stochastic Variance Model.” The Review of Economic Studies 61(2): 247-264.
http://dx.doi.org/10.2307/2297980
Koopman, Siem J., Andrew C. Harvey, Jurgen A. Doornik, and Neil Shephard. 2000. STAMP: Structural Time Series Analyser, Modeller, and Predictor. London: Timberlake Consultant Press.
Ling, David C. and Andy Naranjo. 2002. “Commercial Real Estate Return Performance: A Cross-Country Analysis.” Journal of Real Estate Finance and Economics 24(1-2): 119-142.
http://dx.doi.org/10.1023/A:1013938506550
Lo, Andrew W. and Jiang Wang. 1995. “Implementing Option Pricing Models When Asset Returns are Predictable.” Journal of Finance 50: 87-129.
http://dx.doi.org/10.1111/j.1540-6261.1995.tb05168.x
Liow, Kim H. 2007. “The Dynamics of Return Volatility and Systematic Risk in International Real Estate Security Markets.” Journal of Property Research 24(1): 1–29.
http://dx.doi.org/10.1080/09599910701297663
Liu, Crocker. H. and Jianping Mei. 1998. “The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences.” Real Estate Economics 26(1): 3-39.
http://dx.doi.org/10.1111/1540-6229.00736
Lizieri, Colin, Patrick McAllister, and Charles Ward. 2003. “Continental Shift? An Analysis of Convergence Trends in European Real Estate Equities.” Journal of Real Estate Research 25(1): 1-21.
McAllister, Patrick and Colin Lizieri. 2006. “Monetary Integration and Real Estate Markets: The Impact of Euro on European Real Estate Equities.” Journal of Property Research 23(4): 281–303.
http://dx.doi.org/10.1080/09599910601095266
McMillan, David G. 2001. “Common Stochastic Volatility Trend in European Exchange Rates.” Applied Economics Letters 8(9): 605-608.
http://dx.doi.org/10.1080/13504850010023099
Pindyck, Robert S. 1999. “The Long-Run Evolution of Energy Prices.” The Energy Journal 20(2): 1-27.
http://dx.doi.org/10.5547/ISSN0195-6574-EJ-Vol20-No2-1
Wilson, Patrick and Ralf Zurbruegg. 2003. “Can Large Economies Drive International Real Estate Markets?” Pacific Rim Property Research Journal 9(4): 379-397.
Yunus, Nafeesa and Peggy E. Swanson. 2007. “Modeling Linkages between US and Asia-Pacific Securitized Property Markets.” Journal of Property Research 24(2): 95–122.
http://dx.doi.org/10.1080/09599910701439992
Downloads
Published
2014-06-13
How to Cite
Wang, Y., & Fadiga, M. L. (2014). Common Stochastic Volatility in International Real Estate Market. Journal of Reviews on Global Economics, 3, 131–139. https://doi.org/10.6000/1929-7092.2014.03.10
Issue
Section
Articles
License
Policy for Journals/Articles with Open Access
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are permitted and encouraged to post links to their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work
Policy for Journals / Manuscript with Paid Access
Authors who publish with this journal agree to the following terms:
- Publisher retain copyright .
- Authors are permitted and encouraged to post links to their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work .
