Foreign Property Shocks and the Impact on Domestic Securitized Real Estate Markets: An Unobserved Components Approach

Posted: 9 Nov 2006

See all articles by Patrick J. Wilson

Patrick J. Wilson

University of Technology Sydney (UTS) - School of Finance and Economics

Simon Stevenson

City University London - Sir John Cass Business School

Ralf Zurbruegg

University of Adelaide; Financial Research Network (FIRN)

Abstract

As the globalization of world financial markets continues unabated the issue of benefits arising from international diversification becomes increasingly important. Due to the fixed geographical nature of the underlying product, securitized property might be considered immune from the effects of globalization, and to this extent researchers have considered the issue of international property market interdependence using a variety of statistical procedures. In this paper the question of interdependence across securitized property markets is examined by combining the Inoue (1999) cointegration methodology with the structural time series procedure of Harvey (1989). In the event of commonality of movement across property markets, this approach permits the researcher to isolate and visualize common movement, an operation that may be helpful to a portfolio manager trying to understand cross market activity. The results indicate that there is some unifying force across international property markets and that this unifying force may stem from the United States. The results also suggest that, at least to some extent, shocks to securitized property markets produce a similar response to stock market shocks.

Keywords: structural time series models, cointegration, unobserved components, property market shocks

Suggested Citation

Wilson, Patrick J. and Stevenson, Simon and Zurbruegg, Ralf, Foreign Property Shocks and the Impact on Domestic Securitized Real Estate Markets: An Unobserved Components Approach. Journal of Real Estate Finance and Economics, Vol. 34, No. 3, 2007, Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=943079

Patrick J. Wilson (Contact Author)

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
61 2 9514 7777 (Phone)
61 2 9514 7711 (Fax)

Simon Stevenson

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Ralf Zurbruegg

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide SA 5005
Australia
+61 8 8303 5535 (Phone)
+61 8 8303 4368 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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