Interconnectedness and Contagion in International Real Estate Investment Trusts

19 Pages Posted: 18 May 2017

See all articles by Kim Hiang Liow

Kim Hiang Liow

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

Yuting Huang

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

Date Written: May 10, 2017

Abstract

This paper investigates interconnectedness and contagion effects of the US global financial crisis and the European debt crisis across eight longest-established real estate investment trust markets in the US, Canada, Australia, Japan, Singapore, France, Belgium and Netherlands over the period from October 2003 to December 2016. Using the connectedness indexes developed by Diebold and Yilmaz (2012, 2014 and 2016) and supplementing with selected net directional pairwise network graphs, we find their volatility connectedness was less strong than that of stock markets. Additionally, the volatility connectedness experienced a decrease of over 10% over the full sample period, implying that their slower globalization progress and lower financial integration level, as well as have different patterns of volatility connectedness from the corresponding stock markets. Volatility market connectedness was mainly caused by the cross-market contagion during unstable periods. The rolling sample analysis confirms significant market contagion effects during crises, such as Lehman Brothers Bankruptcy (GFC) and looming financial crisis in Europe (EDC), though the effects varied widely among the REIT markets. Finally, the net directional connectedness was time varying and experienced a shit in terms of net volatility shock transmitters and receivers for the markets due to different nature of crises. Our study reveals fresh evidence of interconnectedness and contagion effects across international REIT markets and indicate the importance of policy countermeasure in reacting to economic and financial crisis.

Keywords: Volatility Connectedness, Contagion, Net Directional Connectedness Indexes, Crisis Causation, Real Estate Investment Trusts

JEL Classification: G01, G15, G19

Suggested Citation

Liow, Kim Hiang and Huang, Yuting, Interconnectedness and Contagion in International Real Estate Investment Trusts (May 10, 2017). Available at SSRN: https://ssrn.com/abstract=2970376 or http://dx.doi.org/10.2139/ssrn.2970376

Kim Hiang Liow (Contact Author)

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

4 Architecture Drive
Singapore 117566
Singapore
65-8743420 (Phone)
65-7748684 (Fax)

Yuting Huang

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

4 Architecture Drive
Singapore 117566
Singapore

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