Integration between real estate equity and non-real estate equity

Date01 April 2014
Published date01 April 2014
AuthorAbel Olaleye,Benjamin Ekemode
Subject MatterProperty management & built environment,Real estate & property,Property valuation & finance
Integration between real estate
equity and non-real estate equity
Abel Olaleye and Benjamin Ekemode
Department of Estate Management, Obafemi Awolowo University,
Ile-Ife, Nigeria
Purpose – The paper examined the long-run relationship between real estate equity (property listed
stock) and non-real estate equity (common stock) in the Nigerian capital market and established the
integration between the investments. The paper aims to discuss these issues.
Design/methodology/approach – The data collected comprised quarterly returns on property
listed stock and All Share Index for the period of January 1999-December 2011. The calculated
quarterly returns of the investments were subjected to the Philip-Person unit root test after which the
integration between the investments was analysed using the Johansson integration test.
Findings – The results showed that real estate equity performed better the non-real estate equity but
with corresponding higher risk level. Also, real estate equity had a slightly lower performance when
compared with non-real estate equity on return/risk ratio basis. The findings showed that property
listed stock (real estate equity) was integrated with common stock or non-real estate equity and
suggest that the Nigerian listed property stock, by nature, was similar to REITs. This result negates
the belief that property listed stock’s returns are integrated with direct real estate market and are often
influenced by the returns of the underlying direct real estate assets.
Practical implications – The paper implied that while investors could consider investing in real
estate equity and earn better return than investing in common equity in the Nigerian capital market,
the inclusion of both in a domestic portfolio could be expected to bring little or no diversification
Originality/value – The paper is one of the few attempts at assessing the long-run relationship
between property listed stock as a form of real estate equity and non-real estate equity and especially
from African emerging market perspective.
Keywords Integrationtest, Nigerian capital market, Non-realestate equity, Real estate equity,
Return/risk level
Paper type Research paper
1. Introduction
Diversification is a strategic option that many portfolio managers use to improve their
firms’ performance. However, it has been established in many studies that risk
reduction benefits can only be achieved when assets combined in a portfolio are
segmented or without integration (Liu et al., 1990; Okunev and Wilson, 1997; Ling and
Naranjo, 1999; Wang, 2001; Haishan, 2003; Wilson and Zurbruegg, 2003; Liow and
Yang, 2005; Yunus, 2012). In other words, establishing the relationship or commonality
between assets or investments within a portfolio is important before venturing into
diversification decision. This explains why analysts and authors such as Liu et al.
(1990), Eicholthz and Hartzell (1996), Liow and Yang (2005), Cauchie and Hoesli (2006)
and Liow (2010) have examined the integration between investment and asset classes
especially between real estate equity and non-real estate equity as well as between real
estate equity and direct real estate.
The current issue and full text archive of this journal is available at
Received October 2013
Accepted January 2014
Journal of Property Investment &
Vol. 32 No. 3, 2014
pp. 244-255
qEmerald Group Publishing Limited
DOI 10.1108/JPIF-10-2013-0063

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