Spillovers of Non-Fundamental Risks Across Securitized Real Estate Markets in Singapore

25 Pages Posted: 20 Apr 2016 Last revised: 7 Jan 2021

See all articles by Tien Foo Sing

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Long Wang

National University of Singapore (NUS)

Date Written: May 4, 2017

Abstract

This study extends the early empirical evidence of sentiment risk spillovers on firms within the same category (Barberis, Shleifer and Wurgler, 2005) and across the overlapping category (Ambrose et al., 2007) to other firms in a non-overlapping but correlated category. This study tests the information spillover effects of the REIT’s index inclusion on a non-overlapping category of assets represented by non-index real estate operating companies (REOCs). Using both the US and Singapore data, we found that the non-index REOC returns became more correlated with the general market index returns after the REIT’s index inclusion event in the US, but the spillover effects on REOCS were weaker in Singapore market. We also use the REIT IPO events in Singapore to test if spillovers could be induced by other market risks, and our results remain the same, where increases in beta were only observed in REIT market, but the changes were insignificant in REOC betas after the IPO events. However, we also found significant captive relationships between REOCs and their sponsored REITs, which imply that REOCs could use REIT IPOs as a “de-risk” vehicle to reduce systematic risks of the sponsor REOCs.

Keywords: Fundamental Risks, Sentiment Risks, Return Comovements, Market Frictions, Risk Spillovers, REITs and REOCs

Suggested Citation

Sing, Tien Foo and Wang, Long, Spillovers of Non-Fundamental Risks Across Securitized Real Estate Markets in Singapore (May 4, 2017). Available at SSRN: https://ssrn.com/abstract=2766633 or http://dx.doi.org/10.2139/ssrn.2766633

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Long Wang

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

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