Asymmetric Correlation and Volatility Dynamics Among Stock, Bond, and Securitized Real Estate Markets

48 Pages Posted: 1 Aug 2010

See all articles by Jian Yang

Jian Yang

University of Colorado at Denver - Business School

Yinggang Zhou

Xiamen University - Department of Finance

Wai Kin Leung

The Chinese University of Hong Kong (CUHK) - School of Hotel and Tourism Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2010

Abstract

We apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500, US corporate bonds, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time, evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There is also evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.

Keywords: CMBS, REITs, Dynamic Conditional Correlation, Macroeconomic Variables

JEL Classification: G11, C32

Suggested Citation

Yang, Jian and Zhou, Yinggang and Leung, Wai Kin, Asymmetric Correlation and Volatility Dynamics Among Stock, Bond, and Securitized Real Estate Markets (July 30, 2010). Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1651513

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

Yinggang Zhou

Xiamen University - Department of Finance ( email )

Xiamen, Fujian 361005
China

Wai Kin Leung

The Chinese University of Hong Kong (CUHK) - School of Hotel and Tourism Management ( email )

Hong Kong
(011852) 2609-8592 (Phone)
(011852) 2603-7724 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
190
Abstract Views
1,510
Rank
238,815
PlumX Metrics