Returns transmission, value at risk, and diversification benefits in international REITs: evidence from the financial crisis

Returns transmission, value at risk, and diversification benefits in international REITs:... We examine daily cross-market return interactions and downside risk between a US REIT returns index and the return indexes of twelve international REIT markets. These relationships are investigated for a period of normal REIT market conditions as well as for periods of inflating and collapsing REIT prices. We find that US REIT returns are contemporaneously correlated with other REITs most strongly during the bubble and crash market conditions where the US REIT market is an almost unilateral transmitter of returns. We also find that the Value at Risk (VaR) of the least capitalized REIT markets is proportionally higher during base/normal market conditions but that the largest REIT markets have the highest VaR contribution during the crash (financial crisis) period. Overall, our evidence indicates that REIT market risk shifted to the largest REIT markets and that diversification benefits eroded considerably during turbulent market conditions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Returns transmission, value at risk, and diversification benefits in international REITs: evidence from the financial crisis

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Publisher
Springer US
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-012-0274-3
Publisher site
See Article on Publisher Site

Abstract

We examine daily cross-market return interactions and downside risk between a US REIT returns index and the return indexes of twelve international REIT markets. These relationships are investigated for a period of normal REIT market conditions as well as for periods of inflating and collapsing REIT prices. We find that US REIT returns are contemporaneously correlated with other REITs most strongly during the bubble and crash market conditions where the US REIT market is an almost unilateral transmitter of returns. We also find that the Value at Risk (VaR) of the least capitalized REIT markets is proportionally higher during base/normal market conditions but that the largest REIT markets have the highest VaR contribution during the crash (financial crisis) period. Overall, our evidence indicates that REIT market risk shifted to the largest REIT markets and that diversification benefits eroded considerably during turbulent market conditions.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 9, 2012

References

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