ASIAN VS EUROPEAN REIT �S STOCK MARKET AND FINANCIAL PERFORMANCE � AN EMPIRICAL STUDY

Abstract

The surge in trade volumes, as well as a growing number of trade agreements between Asia and Europe have resulted in a deepening of the interdependency between the two continents. As such, given that correlations of different financial markets are keys to international portfolio diversification and asset allocation decisions, this paper aims to examine the performance relation of cross-country and regional REIT (Real Estate Investment Trust) market linkages for 8 advanced economies and developed countries across 2 different continents: Europe and Asia.

This research aims to investigate the correlation of market returns of REITs between the Asian and European REITs. The returns are further converted into Sharpe Index and Jensen Index to take into consideration the excess risk returns, and compared in terms of its performance as well as correlation. This is further backed by a descriptive and correlation analysis using the of the REITs’ specific key financial indicators to assess their relationship and overall performance as well. This study extends the period of study from 2007 to 2016. Monthly data is collected over these 10 years, across 3 different economic periods: the Global Financial Crisis (2008 -2009), European Sovereign Debt Crisis (2010 – 2012) and times of improved stability (2013-2016).

All-in-all, the main findings of this study is the fact that returns between Asian and European REITs are strongly correlated during economic crises, and weakly correlated during times of stability. Simultaneously, profitability-wise, Asian REITs consistently perform better than European REITs, although European REITs have exceptional recovery rates and at times outperform the former. Overall, this study hopes to offer more factors of consideration in the decision to make an inter-regional diversification approach.