A Web Of Shocks: Crises Across Asian Real Estate Markets

  • Shaun A. Bond
  • Mardi Dungey
  • Renée Fry


The behaviour of real estate markets during the 1997–98 Financial crisis in Asian economies has received little attention despite the extensive research on other asset markets over this time. This paper examines the transmission of shocks across national real estate markets prior to and during the Asian crisis using a multivariate latent factor framework. The results reveal that diversification opportunities prior to the crisis are much reduced during the crisis. A comparison with regional equity markets shows that the transmission of shocks differs across the real estate and equity markets, providing evidence that investment in multiple asset classes provides some protection from large market downturns.


Latent factor Contagion Indirect estimation Real estate 

JEL Classification

G14 F36 C30 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Bae KH, Karolyi GA, Stulz RM (2003) A new approach to measuring financial contagion. Rev Financ Stud 16(3):717–763CrossRefGoogle Scholar
  2. Baig T, Goldfajn I (1999) Financial market contagion in the asian crisis. IMF Staff Pap 46(2):167–195Google Scholar
  3. Bekaert G, Harvey CR, Ng A (2005) Market integration and contagion. J Bus 78(1):39-69Google Scholar
  4. Bond SA, Karolyi A, Sanders A (2003) International real estate returns a multifactor, multicountry approach, Real Estate Econ 31(3):481–500CrossRefGoogle Scholar
  5. Bond SA, Patel K (2003) The conditional distribution of real estate returns: are higher moments time varying, J Real Estate Finance Econ 26:319–339Google Scholar
  6. Bond SA, Hwang S (2004) Liquidity risk and real estate: a quantitative approach to assessing risk, paper presented to the 2004 European Real Estate Society annual meeting. Milan, June 2004Google Scholar
  7. Butler KC, Joaquin DC (2002) Are the gains from international portfolio diversification exaggerated? The influence of downside risk in bear markets? J Int Money Financ 21:981–1011Google Scholar
  8. Debelle E, Ellis L (2005) The response of financial markets in Australia and New Zealand to news about the Asian crisis. In: M Dungey, D. Tambakis (eds) Identifying international financial contagion: progress and challenges. Oxford University Press, New York, pp 150–187Google Scholar
  9. De Wit I, Dijk R van (2003) The global determinants of direct office real estate returns. J Real Estate Finance Econ 26(1):27–45Google Scholar
  10. Diebold FX, Nerlove M (1989) The dynamics of exchange rate volatility: a multivariate latent-factor ARCH model. J App Econ 4:1–22Google Scholar
  11. Dornbusch R, Park YC, Claessens S (2000) Contagion: understanding how it spreads. World Bank Res Obs 15(2):177–197Google Scholar
  12. Duffie D, Singleton K (1993) Simulated moments estimator of Markov Models of asset prices. Econometrica July, 61(4):929–962Google Scholar
  13. Dungey M, Martin VL (2001) Contagion across financial markets: an empirical assessment. New York Stock Exchange Conference Paper, February 16–17, 2001, HawaiiGoogle Scholar
  14. Dungey M, Fry R, Gonzālez-Hermosillo B, Martin VL (2005a) Empirical models of contagion: a review of the methodologies, Quantitative Finance 5:1–16CrossRefGoogle Scholar
  15. Dungey M, Fry R, Gonzālez-Hermosillo B, Martin VL (2005b) A comparison of alternative tests of contagion with applications. In: M Dungey, D Tambakis (eds) Identifying international financial contagion: progress and challenges. Oxford University Press, New York, pp 60–85Google Scholar
  16. Eichengreen B, Rose AK, Wyplosz C (1995) Exchange market mayhem: the antecedents and aftermath of speculative attacks. Econ Policy 21:249–312Google Scholar
  17. Eichengreen B, Rose AK, Wyplosz C (1996) Contagious currency crises, NBER Working Paper, 5681.Google Scholar
  18. Fama E, French K (1996) Multifactor explanations of asset pricing anomolies. J Finance 51(1):55– 84Google Scholar
  19. Favero CA, Giavazzi F (2002) Is the international propagation of financial shocks non-linear? Evidence from the ERM. J Int Econ 57(1):231–246Google Scholar
  20. Flood R, Rose AK (2004) Equity integration in times of crisis. In: Borio, Hunter, Kaufman, Tsatsanoris (eds) Market discipline. MIT PressGoogle Scholar
  21. Forbes K, Rigobon R (2001) Measuring contagion, conceptual and empirical issues. In: S. Claessens, K. Forbes (eds) International financial contagion. Kluwer Academic PublishersGoogle Scholar
  22. Forbes K, Rigobon R (2002) No contagion, only interdependence: measuring stock market comovements. J Finance 57(5):2223–2261CrossRefGoogle Scholar
  23. Gallant AR, Tauchen F (1996) Which moments to match? Econom Theory 12(4):657–681Google Scholar
  24. Glascock JL, Lu C, So R (2000) Further evidence on the integration of REIT, bond and stock returns. J Real Estate Finance Econ 20:177–194Google Scholar
  25. Gourieroux C, Monfort A, Renault E (1993) Indirect inference. J Appl Econ 8:S85–S118Google Scholar
  26. erring R, Wachter S (1999) Real estate booms and banking busts: an international perspective. Wharton Working Paper Series, pp 99–27Google Scholar
  27. Hong Kong Monetary Authority (1998) Hong Kong Monetary Authority Annual Report 1998. Hong KongGoogle Scholar
  28. Kallberg JG, Liu CH, Pasquariello P (2002) Regime shifts in Asian equity and real estate markets. Real Estate Econ 30(2):263–291CrossRefGoogle Scholar
  29. Kaminsky GL, Reinhart CM (2003) The center and the periphery: tales of financial turmoil. NBER Working Paper 9479Google Scholar
  30. King M, Wadhwani S (1990) Transmission of volatility between stock markets. Rev Financ Stud 3(1):5–33CrossRefGoogle Scholar
  31. Lowenstein R (2001) When genius failed: the rise and fall of long term capital management. 4th Estate, UKGoogle Scholar
  32. Mahieu R, Schotman P (1994) Neglected common factors in exchange rate volatility. J Empir Finance 1:279–311Google Scholar
  33. Masson P (1999) Contagion: macroeconomic models with multiple equilibria. J Int Money Finance 18:587–602CrossRefGoogle Scholar
  34. McKibbin W, Martin W (1998) The East Asian crisis: investigating causes and policy responses. Australian National University Working Paper in Trade and Development, 98/6Google Scholar
  35. Mei J, Hu J (2000) Conditional risk premiums of asian real estate stocks. J Real Estate Finance Economics 21(3):297–313Google Scholar
  36. Mera K, Renaud B (eds) (2000) Asia_s financial crisis and the role of real estate. M.E. Sharpe. New York,Google Scholar
  37. Pericoli M, Sbracia M (2003) A primer on financial contagion. J Econ Surv 17(4):571–608Google Scholar
  38. Pesaran H, PickA(2003) Econometric issues in the analysis of contagion. CESifo Working Paper 1176Google Scholar
  39. The Economist (1997a) A rubbery sort of economy. Economist Nov 1, 1997, 345(8041):78–79Google Scholar
  40. The Economist (1997b) Safe harbour no more. Economist Oct 25, 1997, 345(8040):79–80Google Scholar
  41. The Economist (1998) Finance and Economics: Market Force, Economist Aug 22, 1998, 348(8082):57–58Google Scholar

Copyright information

© Springer Science + Business Media, Inc. 2006

Authors and Affiliations

  1. 1.Department of Land EconomyCambridgeUK
  2. 2.CERF, University of CambridgeCambridgeUK
  3. 3.CAMA, Australian National UniversityACTAustralia
  4. 4.Centre for Applied Macroeconomic AnalysisAustralian National UniversityCanberraAustralia

Personalised recommendations