Linkages between the U.S. and Asia-Pacific REITs: The Role of Economic and Financial Factors

17 Pages Posted: 27 Jul 2011

See all articles by Jing Liu

Jing Liu

Macquarie University

Geoffrey Loudon

Macquarie University, Macquarie Business School

George Milunovich

Macquarie University - Department of Economics; Macquarie University, Macquarie Business School

Date Written: July 26, 2011

Abstract

We study correlations between the national REIT markets in the US and the four Asia-Pacific countries of Australia, Hong Kong, Japan and Singapore, and document the extent to which the time variation present in these correlations can be explained from a set of economic and financial factors. Time-varying correlations are estimated using a DCC-GARCH model that allows for asymmetries in both the correlations and volatilities. Financial factors are more dominant and have greater explanatory power than economic factors. We find that REIT correlations tend to rise with increases in the interaction of national inflation rates, the US default risk premium and global equity market uncertainty. We also find that REIT correlations tend to fall with increases in the interaction of national short term interest rates and the term spread.

Keywords: Real Estate Investment Trusts (REITs), Conditional Correlations, Economic Drivers, Asia-Pacific, Property Investment

JEL Classification: G15, G11, C32

Suggested Citation

Liu, Jing and Loudon, Geoffrey F and Milunovich, George, Linkages between the U.S. and Asia-Pacific REITs: The Role of Economic and Financial Factors (July 26, 2011). Available at SSRN: https://ssrn.com/abstract=1895847 or http://dx.doi.org/10.2139/ssrn.1895847

Jing Liu

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Geoffrey F Loudon

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

George Milunovich (Contact Author)

Macquarie University - Department of Economics ( email )

Sydney NSW 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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