Cointegration of Real Estate Stocks and Reits with Common Stocks, Bonds and Consumer Price Inflation - an International Comparison

41 Pages Posted: 31 Aug 2006 Last revised: 26 Aug 2008

See all articles by Peter Westerheide

Peter Westerheide

Center for European Economic Research (ZEW)

Date Written: 2006

Abstract

This paper analyses the performance of real estate securities and their relationship to other asset classes as well as to consumer price inflation in an international comparison over the period from 1990 to 2004. The analysis focuses on the long run relationships, applying three different cointegration tests. It covers the US, Canada, Australia, Japan, the Netherlands, Belgium, France and Germany. Results show that real estate securities in most countries had a high performance in nominal and real terms. The average performance over the whole period (1990-2004) has been particularly high in capital market oriented countries in the sample (US, Australia), and also in France. Real estate securities have outperformed bond markets on a risk adjusted basis only in the US and in Australia, while an outperformance of stock markets can be observed also in Japan and France. Particularly in the period 2001 to 2004 real estate security market have soared in most countries with the notable exception of Germany. In general, real estate securities seem to represent an asset class distinct from bonds and stocks in most countries. In the long run they seem provide a potential for further diversification of asset portfolios. Additionally, real estate stocks provide a (weak) hedge against consumer price inflation in almost every country.

Keywords: REITs, Real Estate Securities, Cointegration, Stock Markets, Bond Markets

JEL Classification: G10, G11, G20

Suggested Citation

Westerheide, Peter, Cointegration of Real Estate Stocks and Reits with Common Stocks, Bonds and Consumer Price Inflation - an International Comparison (2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-057. Available at SSRN: https://ssrn.com/abstract=927712 or http://dx.doi.org/10.2139/ssrn.927712

Peter Westerheide (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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