The Effect of the Real-Estate Downturn on the Link between REIT's and the Stock Market
Posted: 10 Dec 2008
Date Written: November 10, 2008
We analyze the impact of the real-estate/mortgage crisis on the dependence between the market for common stocks and returns on Real Estate Investment Trusts (REIT's), using a flexible mixed-copula approach. We find that the impact of the crisis on the levels of the tail dependence is very different from the impact on the values of the linear correlations. For this asset class all correlations are lower in the post-crisis period, whereas all other correlations have increased. In contrast, only the tail dependence values between the different REIT's indices seem to be impacted by the crisis, with the level of the tail dependence between each of the different REIT's indices and the stock market being less affected. That is, looking at the correlations the effect of the crisis appears to be a weakening of the connection between residential mortgage REIT's and the rest of the financial market, whereas the effect on the tail dependence suggest that the crisis mainly has an intra-REIT's effect.
Keywords: Real-estate, asymmetric tails, extreme-value dependence
JEL Classification: C13, C22, G22
Suggested Citation: Suggested Citation