Real-Estate Risk Effects on Financial Institutions’ Stock Return Distribution: a Bivariate GARCH Analysis |
| |
Authors: | Elyas Elyasiani Iqbal Mansur Jill L Wetmore |
| |
Institution: | (1) Fox School of Business and Management, Temple University, Philadelphia, PA, USA;(2) Widener University, Chester, PA, USA;(3) University Center, Saginaw Valley State University, Saginaw, MI, USA |
| |
Abstract: | This paper examines two relationships using the bivariate generalized autoregressive conditionally heteroskedastic (GARCH)
methodology. First, the relationship between equity returns of commercial banks, savings and loans (S&Ls) and life insurance
companies (LICs), and those of the real-estate investment trusts (REITs), a proxy for the real-estate sector performance.
Second, the relationship between conditional volatilities of the stock returns of these financial intermediaries (FIs) and
that of REITs. The former relationship allows the spillover of returns between the real-estate and the financial intermediation
sector to be analyzed. The latter allows an investigation of the prevalence, direction and strength of inter-sectoral risk
transmission to be carried out. Several interesting results are obtained. First, the equity returns of the FIs considered
follow a GARCH process and should be modeled accordingly. Second, as found in the literature, returns on REITs should be modeled
using the Fama-French multiple factor model. However, this model has to be extended to incorporate a GARCH error structure.
Third, all FI returns considered are highly sensitive to REIT returns and the effects are both statistically and economically
significant. This is an indication that shocks to REITs returns spillover to the former markets. Fourth, spillover of increased
volatility in the real-estate sector to S&Ls and LICs is significant but not to commercial banks. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|