Academic journal article Journal of Real Estate Literature

International Articles: THE DYNAMICS OF RETURNS AND VOLATILITY IN THE EMERGING AND DEVELOPED ASIAN REIT MARKETS

Academic journal article Journal of Real Estate Literature

International Articles: THE DYNAMICS OF RETURNS AND VOLATILITY IN THE EMERGING AND DEVELOPED ASIAN REIT MARKETS

Article excerpt

Abstract

This paper examines the dynamics of return and volatility spillovers across the REIT markets of Japan, Singapore, Hong Kong, Malaysia, Taiwan, Thailand, and South Korea from June 2006 to May 2011. The emerging markets offer lower returns than the developed markets but lower risk as well. The emerging REIT index outperformed the developed REIT index on a risk-adjusted basis. The analysis suggests that correlations among Asian REIT markets are relatively low, ranging from 0.14 to 0.42 over the full-sample period. The results further indicate that correlations among emerging REIT markets are lower than that among developed markets. However, correlations are non-constant over time and increased during the recent Global Financial Crisis. The results from the EGARCH models show that there is a strong tendency for REIT returns to transmit from developed markets (e.g., Japan and Singapore) to emerging REIT markets. In regard to volatility transmission, the mechanism appears to be multidirectional.

(ProQuest: ... denotes formulae omitted.)

Since their establishment in Japan in 2001, real estate investment trusts (REITs) have flourished rapidly across Asia. Asian REITs have become attractive investment vehicles for international funds seeking portfolio diversification (Newell, Liow, Ooi, and Zhu, 2005; Ooi, Newell, and Sing, 2006). As of July 2011, there were more than 95 listed REITs across Asia with a total market capitalization of U.S. $98.7 billion, accounting for 12% of the global REIT market and 5.1% of the global listed real estate securities market (Macquarie Equities Research, 2011). Apart from the success of REITs in the developed markets of Japan, Hong Kong, and Singapore, the last decade has also witnessed impressive growth of the emerging Asian REIT markets, which include Malaysia, Taiwan, Thailand, and South Korea, underpinned by impressive property developments and favorable demographic terms. Despite their growth prospects and increasing significance, investors still have little information and knowledge on these emerging Asian markets. Therefore, a comprehensive understanding of the interrelationships between the emerging and developed Asian REIT markets is crucial for the development of portfolio diversification, trading strategies, hedging, and risk management for investors.

The body of literature on REIT markets in Asia has been thin and modest as compared to that on the United States and Australia. Studies on the performance of Asian REITs in investment portfolios and their correlations with other financial assets had been carried out within a regional context (Chiang, So, and Tang, 2008; Quek and Ong, 2008; Cheok, Sing, and Tsai, 2011; Ong, Ooi, and Kawaguichi, 2011) or for specific countries such as Japan (Kutsuna, Dimovski, and Brooks, 2008; Su, Huang, and Pai, 2010), Singapore (Sing and Ling, 2003), Hong Kong (Newell, Wu, Chau, and Wong, 2010), Malaysia (Newell, Ting, and Acheampong, 2002: Lee and Ting, 2009; Newell and Osmadi, 2009, 2010; Hwa and Wai, 2011), Taiwan (Lin, 2007; Lee, Kuo, Lee, and Lin, 2011), Thailand (Pham, 2011a), and South Korea (Pham, 2011b). Other studies have investigated the linkages in international real estate securities, including the Asia Pacific region (Garvey, Santry, and Stevenson, 2001; Liow, Ho, Ibrahim, and Chen, 2009). These studies, however, concentrate on the listed property companies rather than REITs. The only published paper that examined the volatility transmission of REIT returns in Asia is that of Li and Yung (2007), who investigated the interactions between the Pacific (Australia, Hong Kong, Japan, and Singapore) and the Atlantic REIT markets (U.K. and U.S.). In general, the findings from previous studies can be summarized as: (1) Asian REITs offer diversification benefits to investors as they have low correlations with other asset classes; (2) the correlation structures are non-constant over time, and (3) there are significant mean and volatility spillover effects from the U. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.