REIT returns: between the Pacific and the Atlantic

Abstract

Purpose

The purpose of this paper is twofold in examining the international transmission of REIT returns volatility. The first purpose is to add to the literature on whether the real estate securities market and the broader equity market are integrated. The second objective of the study is to determine whether geographic risk factors can be transmitted beyond their region of influence.

Design/methodology/approach

The study uses the GARCH(1, 1), EGARCH, and GARCH‐M models.

Findings

The results show that there are significant international spillovers of REIT returns volatility within the Pacific region. The results also show that there are significant volatility transmissions between the Pacific and the Atlantic regions.

Practical implications

The results are consistent with the implication that the real estate sector and the general equity market are integrated such that geographic risk can be transmitted across national borders. The result will have major implications for international investment strategies.

Originality/value

To date, there has been no published study on the international transmission of REIT returns volatility. This study therefore examines whether the conditional variance of REIT returns of a country is affected by volatility transmission across markets in the same region using four Pacific markets.

Citation

Diane Li, D. and Yung, K. (2007), "REIT returns: between the Pacific and the Atlantic", Review of Accounting and Finance, Vol. 6 No. 4, pp. 353-369. https://doi.org/10.1108/14757700710835032