Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets
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AbstractWe apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500, US corporate bonds, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time, evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There is also evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.
All Author(s) ListYang J, Zhou YG, Leung WK
Journal nameJournal of Real Estate Finance and Economics
Year2012
Month8
Day1
Volume Number45
Issue Number2
PublisherSPRINGER
Pages491 - 521
ISSN0895-5638
eISSN1573-045X
LanguagesEnglish-United Kingdom
KeywordsCMBS; Dynamic conditional correlation; Macroeconomic variables; REITs
Web of Science Subject CategoriesBusiness & Economics; Business, Finance; BUSINESS, FINANCE; Economics; ECONOMICS; Urban Studies; URBAN STUDIES

Last updated on 2020-11-07 at 04:55