Cross‐market dynamics in property stock markets. Some international evidence
| Date | 01 February 2005 |
| Pages | 55-75 |
| DOI | https://doi.org/10.1108/14635780510575094 |
| Published date | 01 February 2005 |
| Author | Kim Hiang Liow,Joseph Ooi,Yantao Gong |
| Subject Matter | Property management & built environment |
Cross-market dynamics in
property stock markets
Some international evidence
Kim Hiang Liow, Joseph Ooi and Yantao Gong
Department of Real Estate, National University of Singapore, Singapore
Abstract
Purpose – Aims to investigate the long-run and short-term relationships among four Asian property
stock markets of Japan, Hong Kong, Singapore and Malaysia; and four European property stock
markets of UK, France, Germany and Italy. Additionally, aims to examine the relationships between
equally-weighted Asian and European regional property stock indices.
Design/methodology/approach – The long-term analysis is undertaken using Johansen
multivariate cointegration approach. The degree of short-term dependence is investigated with an
extended EGARCH model for evidence of mean and volatility spillovers across the property stock
markets.
Findings – The combined findings of minimal cointegration, weak mean transmission and lack of
significant evidence of cross-volatility spillovers among the Asian and European property stock
markets imply that investors would benefit from diversifying property stock portfolios internationally
in Asia and Europe in the short- and long-run.
Originality/value – This study contributes significantly to the empirical literature on capital asset
pricing and on the risk-return performance of international real estate. In particular, the findings from
the study will be useful for European investors to understand better the potential portfolio
implications of investing in Asian real estate.
Keywords Property, Stockmarkets, Multivariate analysis, Japan,South East Asia, Europe
Paper type Research paper
1. Introduction
In this paper, we investigate the long-run and short-turn relationships among four
Asian property stock markets of Japan, HongKong, Singapore and Malaysia; and four
European property stock markets of UK, France, Germany and Italy. In addition, we
examine the relationships between an equally- weighted Asian and European regional
property stock indices. A long-term analysis on the three groups of price indices is
undertaken using Johansen multivariate cointegration approach. The degree of
short-term interdependence among the three groups of property stock markets is
investigated with an extended Exponential Generalized Autoregressive Conditional
Heteroscedasticity (EGARCH) model for evidence of mean and volatility spillovers in
the property stock markets.
The current study is primarily motivated by four main reasons. First, most research
examines the mean and volatility spillover effects on different national stock markets,
with little attention paid to the listed real estate (i.e. property stock) markets. One key
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1463-578X.htm
This paper was presented at the European Real Estate Society Conference, Helsinki, 10-13 June
2003.
Cross-market
dynamics
55
Received August 2003
Accepted March 2004
Journal of Property Investment &
Finance
Vol. 23 No. 1, 2005
pp. 55-75
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780510575094
concern is that the research results from the stock markets may not be automatically
extended to the property stock markets as the underlying risk-return per formance of
property stocks are likely to be significantly different from those of the general stock
market in the short, medium and long term. Second, recent studies such as Conover
et al. (2002) and Steinert and Crowe (2001) highlighted the diversification benefits of
including international listed real estate in a mixed asset portfolio. Except for Japan,
the remaining three Asian markets (Singapore, Hong Kong and Malaysia) included in
this study have enjoyed remarkably rapid economic growth in the past decade and
have reasonably long-established track records of listed property investment and
development companies in their capital markets. Third, we include four main
European property stock markets and hence permit us to compare and contrast the
differences in the nature and degree of interdependence and transmission of return and
volatility among the property stock markets in Asia and Europe respectively and thus
any regional property stock portfolio implications can be derived. Fourth, in the real
estate literature, Garvey et al. (2001) examine the linkages between the property stock
markets in Australia, Hong Kong, Japan and Singapore; while Stevenson (2002)
investigates volatility spillover effects in US REITs and other equity and fixed income
sectors. We extend this limited literature to cover both the Asian and European
property stock markets. In this regard we develop two four-country EGARCH models
to provide additional insights into the nature and degree of short-term linkages within
the Asian and European property stock markets. Additionally, we investigate whether
property stock markets in Asia and Europe are related through another two-region
EGARCH model.
Employing both Johansen multivariate cointegration analysis and extended
EGARCH (1, 1) methodology, our results reveal that there is minimal long-term
relationship among the four Asian and four Europe property stock markets
respectively. Additionally, there is weak mean transmission and insignificant evidence
of cross-volatility spillovers. The resultant findings imply that investors would benefit
from diversifying property stock portfolios internationally within Asia and Europe
and across the two regions on both long and short-term basis. Hence the portfolio
effects of international diversification through property stocks are expected to receive
increasing investor interest in international real estate. Our research is thus a
significant piece of international evidence on the combined dynamics of long term
equilibrium relationship and short-term mean and volatility spillovers among the
major property stock markets in Asia and Europe.
The remainder of this paper is organized as follows. Section 2 provides a brief
review of relevant empirical literature. Section 3 presents the data set and summary
statistics. This is followed by a description of the empirical methodologies used in the
study. Section 5 reports the test results from the cointegration and mean and volatility
spillover effects. The final section concludes the paper.
2. Empirical evidence
A number of real estate papers have analyzed the relationships either between direct
and indirect real estate (Barkham and Geltner, 1995; Seiler et al., 1999; Liow, 2000;
Tuluca et al., 2000) or between real estate and stock markets (Liu et al., 1990; Okunev
and Wilson, 1997; Lizieri and Satchell, 1997; Quan and Titman, 1999). These studies
have produced mixed results, depending on the data, time period and methodology
JPIF
23,1
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