Linkages between the U.S. and Asia-Pacific REITs: The Role of Economic and Financial Factors
17 Pages Posted: 27 Jul 2011
Date Written: July 26, 2011
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: Suggested Citation