Returns transmission, value at risk, and diversiﬁcation
beneﬁts in international REITs: evidence
from the ﬁnancial crisis
Published online: 9 February 2012
Ó Springer Science+Business Media, LLC 2012
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.
Keywords Return transmission Á International diversiﬁcation Á Value-at-risk Á
Real estate investment trust Á Financial crisis
JEL Classiﬁcation C58 Á G01 Á G11 Á G15
C. Lu (&)
Department of International Business, College of Management, National Taiwan University,
Taipei City, Taiwan
Department of Finance, College of Business Administration, University of Missouri—St. Louis,
Columbia, MO, USA
College of Business and Public Administration, Governors State University, One University Parkway,
University Park, IL, USA
Rev Quant Finan Acc (2013) 40:293–318