This paper analyzes long-run co-movements between 14 international real estate stock markets and between three economic and geographic regions based on bivariate and multivariate tests for cointegration. While the topic has been analyzed by previous studies such as Gallo and Zhang (2009) and Yunus (2009) among others, this paper is of significant contribution to existing studies since we compare results from different cointegration methodologies. To our knowledge, it is the first study that explicitly controls for structural breaks in the cointegration relationships and consider time-varying cointegration as well as stochastic cointegration when analyzing long-run co-movements between international securitized real estate markets. Furthermore, using data from 1990 to 2009 the covered period is not only characterized by fast growing and upward moving real estate stock markets as many previous studies but also by the period of the current and still ongoing financial crisis that started in 2007. In line with previous studies, the empirical results indicate several cointegration relationships between national real estate stock markets. However, it is shown that most cointegration relationships are unstable and time-varying and that the results from cointegration methodologies suggested by Engle and Granger (1987) and Johansen (1988) might be misleading in that common long-run co-movements are time-varying and are much stronger when structural breaks are considered. Additionally, the detected cointegration relationships are much stronger between national markets within one economic and geographic region than between national markets located in different regions. Thus, from an investor's point of view, the results indicate that broadening the investment horizon from the domestic continent to others regional markets might be more beneficial than diversifying within one region. This conclusion applies particularly to the European real estate stock markets and thus to investors holding European real estate securities.


International Securitized Real Estate Markets, Diversification, Time-Varying Cointegration, Stochastic Cointegration