Volatility changes and property stock returns - An analysis of major Asian countries

Abstract

This study examines the volatility changes and its effect on property stock returns in four Asian markets, namely, Singapore, Japan, Malaysia and Hong Kong. Adapting a method of Haugen, Talmor and Torous (1991) for identifying significant volatility changes, the results generally indicate that average total realized returns have a negative association with the direction of volatility changes during an initial adjustment period, and a positive association later. Assuming same level of volatility increases, we also find that property stocks will compensate investors by offering them relatively higher future returns than common stocks. In addition, the joint effects of own- and cross-volatility changes on a local property market are investigated through the Multivariate GARCH and Probit models. There is evidence of significant volatility spillovers among the four markets. As expected, volatility changes in a foreign market also appear to have significant impact on subsequent returns in a local market.