Time dependent behavior of the Asian and the US REITs around the subprime crisis

Abstract

Purpose

The study uses an AR(1)‐EGARCH(1,1) model to investigate the pricing behaviors of the real estate investment trusts (REITs) for four countries (Australia, Japan, Taiwan and the USA) before and after the 2007 financial crisis.

Design/methodology/approach

The study uses an AR(1)‐EGARCH(1,1) model to investigate the pricing behaviors of the REITs.

Findings

The results show that after the financial crisis, REITS returns show a stronger linkage to the overall market returns but they are not sensitive to expected interest rate movements, except for the Taiwanese REIT market, which shows a negative and significant reaction to the interest rates. There are stronger asymmetric effects of good and bad news on REIT returns particularly after the post financial crisis for the four REIT markets.

Research limitations/implications

An examination of the relationship between REIT and the stock market provides information as how REIT provides an effective device related to the stock portfolio diversification.

Practical implications

It would be interesting to see how the Asian REIT markets differ from the US market on return and risk behavior.

Originality/value

The 2007 subprime crisis happened because of the decline of the real estate market prices in the USA. It represents a special opportunity to examine the time‐dependent behavior of REIT returns in a turbulent market environment.

Citation

Chang, C., Chou, J. and Fung, H. (2012), "Time dependent behavior of the Asian and the US REITs around the subprime crisis", Journal of Property Investment & Finance, Vol. 30 No. 3, pp. 282-303. https://doi.org/10.1108/14635781211223833