Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets
55 Pages Posted: 30 Sep 2010 Last revised: 18 Oct 2011
Date Written: March 28, 2011
This paper analyzes the relationships between local and global securitized real estate markets, but also between securitized real estate and common stock markets. First, the volatility transmissions across markets are examined using an asymmetric t-BEKK (Baba-Engle-Kraft-Kroner) specification of their covariance matrix. Second, correlations from that model and tail dependences estimated using a time-varying copula framework are analyzed to assess whether different dynamics underlie the comovements in the whole distribution and those in the tails. Third, we investigate market contagion by testing for structural changes in the tail dependences. We use data for the U.S., the U.K. and Australia for the period 1990-2010 as a basis for our analyses. Spillover effects are found to be the largest in the U.S., both domestically and internationally. Further, comovements in tail distributions between markets appear to be quite important. We also document different dynamics between the conditional tail dependences and correlations. Finally, we find evidence of market contagion between the U.S. and the U.K. markets following the subprime crisis.
Keywords: volatility Spillovers, Financial Contagion, Asymmetric BEKK Model, Copulas, Structural Breaks, Real Estate Securities
JEL Classification: G11, G15, C32
Suggested Citation: Suggested Citation