Asymmetric downside and upside co-movements between stock and REIT markets

This article aims to investigate whether stock and real estate investment trust (REIT) returns have asymmetric downside and upside co-movements. The investigation is carried out by employing a mixture copula with Markov-switching coefficients for weight, upper tail dependence and lower tail dependence. Empirical result demonstrates that an asymptotic independence and a positive relationship, which has greater dependence in the left tail than in the right tail, coexist. The empirical result provides useful information for making portfolio decisions. In the independent state, the inclusion of stock and REIT indices in a portfolio builds a diversified portfolio. However, a portfolio with stock and REIT assets cannot get the benefit of risk reduction in the positive dependence state.