Volatility Transmission in U.K. Housing: A Multivariate GARCH Approach

William Miles

Journal of Real Estate Portfolio Management, 2010, vol. 16, issue 3, 241-248

Abstract: Executive Summary. Despite its importance for gauging the probability of large losses and portfolio management, there has not been an investigation of how GARCH conditional volatility is transmitted between regions in the United Kingdom. This is an omission, as assets exhibiting GARCH have a much higher probability of large losses during high volatility periods than standard mean-variance analysis indicates. The findings indicate that there is a high conditional covariance between shocks of adjoining regions, and that the conditional covariance declines markedly as distance between regions increases. This suggests some scope for diversification benefits by holding a geographically varied set of housing assets.

Date: 2010
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DOI: 10.1080/10835547.2010.12089883

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