Macroeconomic Risk Factors in Australian Commercial Real Estate, Listed Property Trust and Property Sector Stock Returns: A Comparative Analysis Using Garch-M

University of Wollongong Faculty of Commerce Papers, 2006

21 Pages Posted: 14 Aug 2012

Date Written: 2006

Abstract

This paper employs a Generalized Autoregressive Conditional Heteroskedasticity in Mean (GARCH-M) model to consider the effect of macroeconomic factors on Australian property returns over the period 1985 to 2002. Three direct (office, retail and industrial property) and two indirect (listed property trust and property stock) returns are included in the analysis, along with market returns, short, medium and long-term interest rates, expected and unexpected inflation, construction activity and industrial employment and production. In general, macroeconomic factors are found to be significant risk factors in Australian commercial property returns. However, the results also indicate that forecast accuracy in these models is higher for direct office, listed property trust and property stock returns and that the persistence of volatility shocks varies across the different markets, with volatility half lives of between five and seven months for direct retail and industrial property, two and three months for direct office property and less than two months with both forms of indirect property investment.

Keywords: property returns, listed property trust, property stocks, market risk, interest rate risk, industrial production and construction activity, generalised autoregressive conditional heteroskedasticity in mean (GARCH-M) models

Suggested Citation

West, Tracey and Worthington, Andrew C., Macroeconomic Risk Factors in Australian Commercial Real Estate, Listed Property Trust and Property Sector Stock Returns: A Comparative Analysis Using Garch-M (2006). University of Wollongong Faculty of Commerce Papers, 2006, Available at SSRN: https://ssrn.com/abstract=2128982

Tracey West (Contact Author)

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Andrew C. Worthington

Griffith University ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia
+61 (0)7 3735 4273 (Phone)
+61 (0)7 3735 3719 (Fax)

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