The primary contribution of this study is to assess whether public real estate markets and stock markets are linked at the local, regional, and global levels, and to assess the evolution of their dynamic relationship and gradual integration during the last two decades for a comprehensive sample of nine public real estate and stock markets across Asia-Pacific, Europe, and the US.

For individual pairs of public real estate and stock markets, the analysis indicates that the current levels of local, regional, and global real estate and stock market correlations are time-varying and are, at most, moderate at the respective integration levels. The linkages between real estate and local stock markets in the Asia-Pacific economies are (significantly) higher than the corresponding regional and global linkages, while the non-Asia-Pacific public real estate markets are generally more correlated with the regional stock markets than with their respective local stock markets. Also, real estate and stock markets become more correlated in periods of high volatility, as the (recent) global financial crisis has indicated for all markets and the Asian crisis in 1997 and 1998 for the Asian markets, in particular. Causality analysis reveals that there are instances of contemporaneous and lead-lag interactions in return and volatility between real estate and stock markets; however, the causality relationship appears weaker. Further, the mean and variance causality linkages between the real estate and stock markets are found to be unstable over the “pre-crisis” and “crisis / post-crisis” periods. Finally, integration analysis implies that the real estate markets have, on average, slowly become more integrated with the regional and global stock markets, and, in the long run, less so with the local stock market.

By examining the relationship between real estate and stock markets for the nine economies as a group, we obtain the general co-movement between real estate and stock markets in a more direct way. For the three groups including nine public real estate markets, nine local stock markets and three regional stock markets, we are able to extract five common factors that generate returns – namely two real estate factors, two local stock market factors and one regional stock market factor. The nature of the factor structure not only allows us to associate two (real estate and local stock markets) factors fairly clearly to two groups (Asia and non-Asia); these extracted factors also allow us to directly assess the dynamic relationships between public real estate and stock markets as a group, and thereby complement the individual results. In addition, there appears to be a declining real estate and stock return dispersion and differential at the local, regional, and global levels for all nine economies, indicating a tendency of return convergence between real estate and stock markets in an international environment. Finally, our analysis serves to remind international investors being keen to developed real estate equities and common stocks in their portfolios of the changing portfolio diversification benefits of their real estate assets with local, regional, and global stocks.


Liow, Kim Hiang
Schindler, Felix


Time-Varying Integration, Return and Volatility Causality, Multivariate Asymmetric DCC-GARCH, Return Convergence, Securitized Real Estate Markets, International Stock Markets