Dynamic Linkages Among U.S. Real Estate Sectors Before and After the Housing Crisis

Abstract

This study explores the dynamic nature of linkages among seven key real estate sectors which include residential, health, lodging-resort, storage, office, retail and industrial. Long-run results reveal evidence of increased integration and contagion across the real estate sectors in the wake of the housing crisis. Short-run analyses suggest bi-directional causality and indicate that shocks to one real estate sector have a much more severe and persistent impact on other real estate sectors during the post-crisis period in comparison to the pre-crisis period. Finally, ripple effects are observed across the real estate sectors with shocks emanating from the ``dominant” residential sector and spilling over to other real estate sectors.

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Notes

  1. 1.

    Hamao et al. (1990), King and Wadhwani (1990), Sheng and Tu (2000), Forbes and Rigobon (2002) Rezayat and Yavas (2006), Chiou (2009), Dooley and Hutchison (2009), Chan et al. (2011), Guo et al. (2011), and Khaled et al. (2011) among others.

  2. 2.

    We thank an anonymous referee immensely for bringing up this crucial point.

  3. 3.

    See for instance Long and Plosser (1987), Durlauf (1989), Engle and Issler (1995), Case et al. (2000), Hamelink et al. (2000), MacGregor and Schwann (2003) and Francis and Ibbotson (2009) among others.

  4. 4.

    The list of hypothesis tests appear after the methodology section.

  5. 5.

    See for instance Dooley and Hutchison (2009), Chan et al. (2011), Guo et al. (2011), Kenourgios et al. (2011) and Khaled et al. (2011) among others.

  6. 6.

    It is important to note that a handful of studies have also found that greater diversification benefits can be achieved across regions. See for instance Mueller and Ziering (1992) and Mueller (1993) among others.

  7. 7.

    Detailed description is freely available in the ``Ground Rules for Management of the FTSE EPRA/NAREIT Global Real Estate Index series” version November 2014, pages 38–39.

  8. 8.

    Detailed explanations of the Dickey Fuller tests can be found in Dickey and Fuller (1979, 1981).

  9. 9.

    We thank an anonymous referee profusely for making this important point.

  10. 10.

    Details of the mean-variance spanning tests, can be found in DeRoon and Nijman (2001), Kan and Zhou (2001), Chen et al. (2005), Switzer and Fan (2007) and Kan and Zhou (2012) among others.

  11. 11.

    Many studies in the literature have ignored this second potential source of causality that is causality through the ECT(s).

  12. 12.

    These results are available upon request.

  13. 13.

    Data have been provided by CEIC and the FRED.

  14. 14.

    See for instance Chen et al. (2005) and Switzer and Fan (2007) among others who used similar benchmark and who perform the spanning regressions in a similar fashion.

  15. 15.

    Data have been provided by CEIC and the FRED.

  16. 16.

    See for instance Chen et al. (2005) and Chiang and Lee (2007) among others who use similar benchmark.

  17. 17.

    Since the results of the spanning tests yielded inconclusive results when stocks and bonds were added to the benchmark, we evaluate, whether or how the addition of stocks and bonds affect the cointegration test results. Thus, separate cointegration tests are conducted to analyze the long-run linkages among financial assets and property sectors. The results indicate that the number of cointegrating vectors increased when stock market indexes are added and even more so when bond market indexes are included. However, the addition of stock and bond market indexes does not change the inference or the implications of the cointegration results from a portfolio diversification point of view. These results are not reported due to brevity purposes but are available upon request.

  18. 18.

    Granger and Newbold (1974), Enders (1995), Hamilton (1994), Hendry (1995), Alexander (2001), Phylaktis and Ravazzolo (2005), Syriopoulos (2006) and Alexakis (2010).

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Correspondence to Nafeesa Yunus.

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Yunus, N. Dynamic Linkages Among U.S. Real Estate Sectors Before and After the Housing Crisis. J Real Estate Finan Econ 58, 264–289 (2019). https://doi.org/10.1007/s11146-017-9639-7

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Keywords

  • Real estate sectors
  • Housing crisis
  • Ripple effects
  • Contagion
  • Portfolio
  • Diversification

JEL Classification

  • C22
  • C58
  • G1
  • G11
  • F15