A CYCLICAL ANALYSIS ON THE CO-MOVEMENTS AND CONTAGION IN INTERNATIONAL DEVELOPED PUBLIC REAL ESTATE MARKETS

Abstract

This study examines the empirical relationship between the co-movements of international securitized real estate markets (United States, United Kingdom, Singapore, Hong Kong and Japan), via frequency-domain techniques. In particular, the markets’ changes in cyclical behavior, lead-lag relationship, and existence of any contagion during the post Global Financial Crisis (GFC), are the focal points of study.

The results indicate presence of greater degrees of co-movements between majority of the country-pairs after the sub-prime crisis. The United States (US) and United Kingdom (UK) have the highest degrees of contagion effect on the other economies following the economic shock. The US tends to execute dominance or lead in the global securitized real estate market, with the exception of Japan.

Singapore and Hong Kong were found to have higher degrees of cyclical correlation and co-movements during the post-crisis period, with the United States and United Kingdom. Japan moved slightly more closely in tandem with Singapore and Hong Kong, signifying its decreasing co-movements with the global market due to geographical distances.

International portfolio diversification benefits tend to vary along with different degrees of co-movements and contagion effect between continents, regions, or countries. This study is expected to provide greater insights into the cyclical characteristics of international developed public real estate markets, thereby helping investors to formulate more informed choices for the benefit of international portfolio optimisation.