Shocks Implication on the Fundamental Drivers of Pan-European Equity Reits: Volatility Connectedness

40 Pages Posted: 26 Oct 2019 Last revised: 8 Nov 2019

See all articles by Naoufal Nassili

Naoufal Nassili

Paris Dauphine University, LEDa-SDFi, Students

Arnaud Simon

Université Paris Dauphine - Centre de Recherches sur la Gestion (CEREG)

Richard Malle

Conservatoire National des Arts et Métiers (CNAM)

Date Written: September 2, 2019

Abstract

The European economic integration and the financialization of the real estate certainly brought enormous contributions for the investment in this class of asset, on the other hand, the faster propagation of the shocks and the sudden corrections of markets become serious subjects. The aim of this paper is to shed light on these invisible risks, our contribution is to unravel the mystery around the existing volatility spillovers among equity REITs. The econometric modelisation is done through the Generalized Variance Decomposition of Diebold & Yilmaz and the time-frequency dynamics framework of Barunik & Krehlik. Exchange-listed equity REITs have complex patterns of volatility since they are the nexus of two markets: the real estate and the equity market. From a sample of 42 Pan-European REITs throughout a period of 15 years spanning from 2004 to the end of 2018 and using an intra-day sampling we document several insights and findings. In the static connectedness, we did find similar results as the literature analyzing equity connectedness at stress period i.e. convergence of connectedness among the REITs. Moreover, REITs co-movements is mainly explained by the geographical aspects and commercial real estate sub-sectors. Dynamically, the source of shocks (e.g. from Monetary policy or from stock market) does not always explain the persistency of these shocks but rather how markets interpret the shocks during high-frequency intervals.

Keywords: REITs Connectedness, Volatility Spillovers, REITs Pricing Dynamics, Machine Learning, Lasso Shrinkage, Real Estate Connectedness, Market Risk, Systemic Risk, Network Visualization, Pairwise Connectedness, Total Directional Connectedness, Variance Decomposition

JEL Classification: C32, C52, C55, C58, D40, G02, G12, G23, R33

Suggested Citation

Nassili, Naoufal and Simon, Arnaud and Malle, Richard, Shocks Implication on the Fundamental Drivers of Pan-European Equity Reits: Volatility Connectedness (September 2, 2019). Available at SSRN: https://ssrn.com/abstract=3440670 or http://dx.doi.org/10.2139/ssrn.3440670

Naoufal Nassili (Contact Author)

Paris Dauphine University, LEDa-SDFi, Students ( email )

France

Arnaud Simon

Université Paris Dauphine - Centre de Recherches sur la Gestion (CEREG) ( email )

Paris Dauphine University
Place de Lattre de Tassigny
Paris, 75775
France

Richard Malle

Conservatoire National des Arts et Métiers (CNAM) ( email )

292, rue Saint-Martin
Paris cedex 03, 75141
France

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