Spillover Risks in REITs and Other Asset Markets

34 Pages Posted: 24 Apr 2015

See all articles by Ming-Chu Chiang

Ming-Chu Chiang

Kun Shan University of Technology

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

I. Chun Tsai

Southern Taiwan University of Science and Technology - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 22, 2015

Abstract

Large shocks that spill over from one market to another market become increasingly more prevalent especially in recent years as investors switch liquidity more frequently from markets to markets. This study uses Diebold and Yilmaz (2012) methodology to measure return spillovers across asset markets. We find that total return spillovers account for one-third of total return variances in four asset markets (equity REIT, mortgage REIT, stock, and bond) for the sample period from January 1972 to September 2014. If commercial real estate is included and for a more recent period from February 1998 to September 2014, we find that the average total return spillovers are still relatively high at 28.0%. We find that the total return spillovers and the net return spillovers have significant and negative effects on the returns of equity REIT, mortgage REIT and stock. The return spillovers risks also add incremental premiums to the three asset markets, which are not captured the Fama-French risk premiums. Investors should thus not neglect spillover risks when constructing their asset allocation strategies.

Keywords: Systematic risk, total return spillovers, net return spillovers, own return spillovers, asset returns, REITs, stock, real estate

JEL Classification: G12

Suggested Citation

Chiang, Ming-Chu and Sing, Tien Foo and Tsai, I. Chun, Spillover Risks in REITs and Other Asset Markets (April 22, 2015). Available at SSRN: https://ssrn.com/abstract=2597773 or http://dx.doi.org/10.2139/ssrn.2597773

Ming-Chu Chiang

Kun Shan University of Technology ( email )

949, Da Wan Road
Tainan Hsien 710
Taiwan

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

I. Chun Tsai

Southern Taiwan University of Science and Technology - Department of Finance ( email )

Nan-Tia St.
Tainan Taiwain 710, Tainan
China

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