Foreign Property Shocks and the Impact on Domestic Securitized Real Estate Markets: An Unobserved Components Approach |
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Authors: | Patrick J Wilson Simon Stevenson Ralf Zurbruegg |
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Institution: | (1) School of Finance and Economics University of Technology, Sydney , Broadway, P. O. Box 123 , NSW, Australia;(2) CASS Business School, City University, London, UK;(3) School of Commerce, University of Adelaide, Adelaide, Australia |
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Abstract: | As the globalization of world financial markets continues unabated the issue of benefits arising from international diversification
becomes increasingly important. Due to the fixed geographical nature of the underlying product, securitized property might
be considered immune from the effects of globalization, and to this extent researchers have considered the issue of international
property market interdependence using a variety of statistical procedures. In this paper the question of interdependence across
securitized property markets is examined by combining the Inoue (1999) cointegration methodology with the structural time series procedure of Harvey (1989). In the event of commonality of movement across property markets, this approach permits the researcher to isolate and visualize
common movement, an operation that may be helpful to a portfolio manager trying to understand cross market activity. The results
indicate that there is some unifying force across international property markets and that this unifying force may stem from
the United States. The results also suggest that, at least to some extent, shocks to securitized property markets produce
a similar response to stock market shocks. |
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Keywords: | Structural time series models Cointegration Unobserved components Property market shocks |
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