Spillovers between US real estate and financial assets in time and frequency domains

Publication Date09 April 2020
AuthorAviral Kumar Tiwari,Christophe André,Rangan Gupta
SubjectProperty management & built environment,Real estate & property,Property valuation & finance
Spillovers between US real estate
and financial assets in time and
frequency domains
Aviral Kumar Tiwari
Faculty of Finance and Banking, Ton Duc Thang University,
Ho Chi Minh City, Vietnam and
South Ural State University, Celabinsk, Russian Federation
Christophe Andr
Department of Economics,
Organisation for Economic Co-operation and Development, Paris, France, and
Rangan Gupta
Faculty of Economics, University of Pretoria, Pretoria, South Africa
Purpose Assessing the strength and time variation of spillovers between returns on residential real estate,
real estate investment trusts (REITs), stocks and bonds in the United States. Spillovers reduce the benefits of
portfolio diversification, especially in crisis times, when asset returns tend to be more correlated.
Design/methodology/approach The DieboldYilmaz approach in the time domain and the Barun
ık methodology in the frequency domain are used. The latter allows distinguishing spilloversgenerating
only short-lived volatility from those with a more persistent effect.
Findings On average, spillovers between housing, stock and bond returns are relatively modest and shocks
to stock and bond markets affect housing returns more than the other way round, even though with variations
over time. Spillovers in both directions are much stronger between REITs and stocks than between REITs and
housing. Shocks originating in the housing market are most persistent, particularly in the aftermath of the
subprime crisis.
Practical implications Housing provides a hedge against volatility in financial (including REITs) markets.
However, hedging strategies involving housing need to take into account potential tail events such as the GFC
and the investment horizon.
Originality/value To the best of the knowledge of the authors, this paper is the first to apply the Barun
ık methodology to real estate price spillovers. Although the DieboldYilmaz methodology has been used
in several studies on spillovers between residential real estate and financial asset returns, this paper covers a
new set of variables and time span.
Keywords Real estate, Stocks, Bonds, Spillovers, Portfolio management
Paper type Research paper
1. Introduction
Understanding the interconnections between different markets is crucial for investors in
both real and financial assets. Markets with relatively low interconnections offer
opportunities for diversification and reducing the sensitivity of portfolios to spikes in
the returns of specific assets. However, interconnectedness may vary over time, for two
reasons. First, rare events can alter economic and financial reactions and thereby the
pattern of spillovers during a particular period. For example, recent crises and in particular
the global financial crisis (GFC) sparked by the subprime mortgage market meltdown in
US real estate
and financial
asset spillover
The authors would like to thank two anonymous referees for useful comments and suggestions. The
views expressed in this paper are those of the authors and do not necessarily reflect those of the
Organisation for Economic Co-operation and Development (OECD) or the governments of its member
The current issue and full text archive of this journal is available on Emerald Insight at:
Received 15 August 2019
Revised 23 December 2019
Accepted 18 January 2020
Journal of Property Investment &
Vol. 38 No. 6, 2020
pp. 525-537
© Emerald Publishing Limited
DOI 10.1108/JPIF-08-2019-0110

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