TY - JOUR
T1 - Asymmetric Correlation and Volatility Dynamics among Stock, Bond, and Securitized Real Estate Markets
AU - Yang, Jian
AU - Zhou, Yinggang
AU - Leung, Wai Kin
N1 - Funding Information:
Acknowledgements We gratefully acknowledge helpful comments from Warren Bailey, Amitabh Godha, Qiao Liu, Christopher Schwarz, Ko Wang, session/seminar participants at Sun Yat-Sen University, Hunan University, 2010 Midwest Finance Association annual meeting, 2010 China International Conference in Finance, 2010 Global Chinese Real Estate Congress annual meeting, and 2010 Asian Real Estate Society annual conference. An earlier version of this paper was awarded the 2010 Global Chinese Real Estate Congress Best Paper Award. Extensive comments from an anonymous referee have greatly improved the paper. Zhou acknowledges the financial support of a direct grant from the Research Grants Council of the Hong Kong Special Administration Region, China (Project No. Chinese U 2070446).
PY - 2012/8
Y1 - 2012/8
N2 - We apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500, US corporate bonds, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time, evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There is also evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.
AB - We apply a multivariate asymmetric generalized dynamic conditional correlation GARCH model to daily index returns of S&P500, US corporate bonds, and their real estate counterparts (REITs and CMBS) from 1999 to 2008. We document, for the first time, evidence for asymmetric volatilities and correlations in CMBS and REITs. Due to their high levels of leverage, REIT returns exhibit stronger asymmetric volatilities. Also, both REIT and stock returns show strong evidence of asymmetries in their conditional correlation, suggesting reduced hedging potential of REITs against the stock market downturn during the sample period. There is also evidence that corporate bonds and CMBS may provide diversification benefits for stocks and REITs. Furthermore, we demonstrate that default spread and stock market volatility play a significant role in driving dynamics of these conditional correlations and that there is a significant structural break in the correlations caused by the recent financial crisis.
KW - CMBS
KW - Dynamic conditional correlation
KW - Macroeconomic variables
KW - REITs
UR - http://www.scopus.com/inward/record.url?scp=84864281474&partnerID=8YFLogxK
U2 - 10.1007/s11146-010-9265-0
DO - 10.1007/s11146-010-9265-0
M3 - Article
AN - SCOPUS:84864281474
SN - 0895-5638
VL - 45
SP - 491
EP - 521
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
IS - 2
ER -