Volatility Decomposition and Correlation in International Securitized Real Estate Markets
Posted: 12 Nov 2009
Date Written: November 11, 2009
This study contributes to the literature in international securitized real estate market volatility in three ways. Each market's conditional volatility is decomposed into a "permanent" or long-run component and a "transitory" or short-run component via a Component-GARCH model. Even though with the same number of common factors derived from the "permanent" and "transitory" volatility series, their loadings are not similar and consequently the long-run and short-run volatility linkages for some markets are different. Finally there are significant volatility co-movements between real estate and stock markets' "permanent" and "transitory" components between real estate and stock markets' "permanent" and "transitory" components suggesting that real estate markets are at least not segmented from stock markets in international investing.
Keywords: permanent volatility, transitory volatility, Component-GARCH model, correlation, securitized real estate markets
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