, Volume 45, Issue 3, pp 457–487 | Cite as

Regime dependent volatilities and correlation in international securitized real estate markets

  • Kim Hiang LiowEmail author
  • Qing Ye
Original Paper


This paper studies the role of regime shifts and time-varying volatilities in market integration in a Markov-switching volatility regime environment among the US, European and Asian developed securitized real estate markets. With a two-state volatility model, the study finds the co-dependence, co-movement and synchronization of volatility regime at the high volatility state are stronger between the US and European securitized real estate markets. Although correlations among the markets are higher in a high volatility regime than in a low volatility regime, there is limited evidence of contagious effects during the high volatility periods between some markets. Moreover, the unsecuritized real estate markets are different from their securitized equivalent in the volatility regime characteristics, correlation pattern and level, as well as the extent of correlation change and contagion effect in high volatility state. Thus, the regime-switching results from stock markets may not be automatically extended to the corresponding public real estate markets, and requires rigorous empirical scrutiny.


Volatility regimes Cross-market correlations Securitized real estate markets Bivariate SWARCH model Markov-switching vector autoregressive model 



The first author wishes to acknowledge the funding support given by the Ministry of Education, Singapore, in respect of the research project R-297-000-119-112 to which this paper is related to. The funding agency had no involvement in study design, data collection and analysis, development of results and final preparation of report, as well as decision to submit the article for publication.


  1. Ahmad W, Bhanumurthy NR, Sehgal S (2015) Regime dependent dynamics and European stock markets: is asset allocation really possible. Empirica 42:77–107CrossRefGoogle Scholar
  2. Ang A, Bekaert G (2002) International asset allocation with regime shifts. Rev Financ Stud 15:1137–1187CrossRefGoogle Scholar
  3. Ang A, Chen J (2002) Asymmetric correlations of equity portfolios. J Financ Econ 63:443–494CrossRefGoogle Scholar
  4. Bai J, Perron P (2003) Computation and analysis of multiple structural change models. J Appl Econom 18:1–22CrossRefGoogle Scholar
  5. Bond SA, Dungey M, Fry R (2006) A web of shocks: crises across Asian real estate markets. J Real Estate Financ Econ 32:253–274CrossRefGoogle Scholar
  6. Cai J (1994) A Markov model of unconditional variance in ARCH. J Bus Econ Stat 12:309–316Google Scholar
  7. Canarella G, Pollard SK (2007) A switching ARCH (SWARCH) model of stock market volatility: some evidence from Latin America. Int Rev Econ 54(4):445–462CrossRefGoogle Scholar
  8. Case B, Guidolin M, Yildrim Y (2014) Markov switching dynamics in REIT returns: univariate and multivariate evdience on foredcasting performance. Real Estate Econ 42(2):279–342CrossRefGoogle Scholar
  9. Chang GD, Chen CS (2014) Evidence of contagion in global REITs investment. Int Rev Econ Financ 31:148–158CrossRefGoogle Scholar
  10. Chkili W, Nguyen DK (2014) Exchange rate movements and stock market returns in a regime-switching environment: evidence for BRIS countries. Res Int Bus Financ 31:36–56CrossRefGoogle Scholar
  11. Chow GC (1960) Tests of equality between sets of coefficients in two linear regressions. Econometrica 28:591–605CrossRefGoogle Scholar
  12. Crawford GW, Fratantoni MC (2003) Assessing the forecasting performance of regime-switching, ARIMA and GARCH models of house prices. Real Estate Econ 31(2):223–243CrossRefGoogle Scholar
  13. Diamandis P (2008) Financial liberalization and changes in the dynamic behavior of emerging market volatility: evidence from four Latin American equity markets. Res Int Bus Financ 22:362–377CrossRefGoogle Scholar
  14. Edwards S, Susmel R (2001) Volatility dependence and contagion in emerging equity markets. J Dev Econ 66:505–532CrossRefGoogle Scholar
  15. Eichholtz PM (1996) Does international diversification work better for real estate than for stocks and bonds? Financ Anal J 52(1):56–62CrossRefGoogle Scholar
  16. Forbes KJ, Rigobon R (2002) No contagion, only interdependence: measuring stock market comovements. J Financ 57:2223–2261CrossRefGoogle Scholar
  17. Gerlach R, Wilson P, Zurbruegg R (2006) Structural breaks and diversification: the impact of the 1997 Asian financial crisis on the integration of Asia-Pacific real estate markets. J Int Money Financ 25:974–991CrossRefGoogle Scholar
  18. Giliberto S (1990) Equity real estate trusts and real estate return. J Real Estate Res 5:259–273Google Scholar
  19. Guidolin M, Timmermann A (2007) Asset allocation under multivariate regime switching. J Econ Dyn Control 31(11):3503–3544CrossRefGoogle Scholar
  20. Guo F, Chen CR, Huang YS (2011) Markets contagion during financial crisis: a regime-switching approach. Int Rev Econ Financ 20(1):95–109CrossRefGoogle Scholar
  21. Hamilton JD (1989) A new approach to the economic analysis of nonstationary time series and the business cycle. Econom J Econom Soc 357–384Google Scholar
  22. Hamilton JD, Susmel R (1994) Autoregressive conditional heteroskedasticity and changes in regime. J Econ 64:307–333CrossRefGoogle Scholar
  23. Hoesli M, Reka K (2013) Volatility spillovers, comovements and contagion in securitized real estate markets. J Real Estate Financ Econ 47:1–35CrossRefGoogle Scholar
  24. Hoesli M, Reka K (2015) Contagion channels between real estate and financial markets. Real Estate Econ 43(1):101–138CrossRefGoogle Scholar
  25. Hudson-Wilson S, Fabozzi FJ, Gordon JN (2003) Why real estate? J Portf Manag 29:12–25CrossRefGoogle Scholar
  26. Jochun C (2001) Is the covariance of international stock market returns regime dependent? Eur J Financ 7:247–268CrossRefGoogle Scholar
  27. Kallberg JG, Liu CH, Pasquariello P (2002) Regime shifts in Asian equity and real estate markets. Real Estate Econ 30:263–291CrossRefGoogle Scholar
  28. Krolzig H-M (1997) Markov-switching vector autoregressions (modelling, statistical interference, and application to business cycle analysis). Lecture notes in economics and mathematical systemsGoogle Scholar
  29. Lamoureux CG, Lastrapes WD (1990) Heteroskedasticity in stock return data: volume versus GARCH effects. J Financ 45(1):221–229CrossRefGoogle Scholar
  30. Li M (2007) Volatility states and international diversification of international stock markets. Appl Econ 39(14):1867–1876CrossRefGoogle Scholar
  31. Lin TC, Lin ZH (2011) Are stock and real estate markets integrated? An empirical study of six Asian economies. Pacific-Basin Financ J 19(5):571–585CrossRefGoogle Scholar
  32. Ling D, Naranjo A (2002) Commercial real estate return performance: a cross-country analysis. J Real Estate Financ Econ 24:119–142CrossRefGoogle Scholar
  33. LIow KH (2008) Financial crisis and Asian real estate securities market interdependence: some additional evidence. J Prop Res 25:127–155CrossRefGoogle Scholar
  34. Liow KH, Ye Q (2014) Switching volatility and cross-market linkages in public property markets. J Prop Res 31(4):287–314CrossRefGoogle Scholar
  35. Liow KH, Zhu H (2007) Regime switching and asset allocation: evidence from international real estate security markets. J Prop Invest Financ 25(3):274–288CrossRefGoogle Scholar
  36. Liow KH, Zhu H, Ho DK, Addae-Dapaah K (2005) Regime changes in international securitized property markets. J Real Estate Portf Manag 11:147–165Google Scholar
  37. Liow KH, Ho KH, Ibrahim MF, Chen Z (2009) Correlation and volatility dynamics in international real estate securities markets. J Real Estate Financ Econ 39:202–223CrossRefGoogle Scholar
  38. Liow KH, Chen Z, Liu J (2011) Multiple regimes and volatility transmission in securitized real estate markets. J Real Estate Financ Econ 42:295–328CrossRefGoogle Scholar
  39. Lizieri C (2013) After the fall: real estate in the mixed-asset portfolio in the aftermath of the global financial crisis. J Portf Manag 39(5):43CrossRefGoogle Scholar
  40. Longin F, Solnik B (2001) Extreme correlation of international equity markets. J Financ 56:649–676CrossRefGoogle Scholar
  41. Lu C, Tse Y, Williams M (2013) Returns transmission, value at risk, and diversification benefits in international REITs: evidence from the financial crisis. Rev Quant Financ Acc 40(2):293–318CrossRefGoogle Scholar
  42. Maitland-Smith JK, Brooks C (1999) Threshold autoregressive and Markov switching models: an application to commercial real estate. J Prop Res 16:1–19CrossRefGoogle Scholar
  43. McCue TE, Kling JL (1994) Real estate returns and the macroeconomy: some empirical evidence from real estate investment trust data, 1972–1991. J Real Estate Res 9:277–287Google Scholar
  44. Milunovich G, Trück S (2013) Regional and global contagion in real estate investment trusts: the case of the financial crisis of 2007-2009. J Prop Invest Financ 31(1):53–77CrossRefGoogle Scholar
  45. Nishiyama K (1998) Some evidence on regime shifts in international stock markets. Manag Financ 24(4):30–55Google Scholar
  46. Qiao Z, Li Y, Wong W-K (2010) Regime-dependent relationships among the stock markets of the US, Australia and New Zealand: a Markov-switching VAR approach. Appl Financ Econ 21(24):1831–1841CrossRefGoogle Scholar
  47. Ramchand L, Susmel R (1998) Volatility and cross correlation across major stock markets. J Empir Financ 5:397–416CrossRefGoogle Scholar
  48. Schaller H, Van Norden S (1997) Regime switching in stock market returns. Appl Financ Econ 7:177–191CrossRefGoogle Scholar
  49. Wang P, Thebold M (2008) Regime-switching volatility of six East Asian emerging markets. Res Int Bus Financ 22:267–283CrossRefGoogle Scholar
  50. Yunus N (2009) Increasing convergence between US and international securitized property markets: evidence based on co-integration tests. Real Estate Econ 37(3):383–411CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Department of Real EstateNational University of SingaporeSingaporeSingapore

Personalised recommendations