Listed real estate futures trading, market efficiency, and direct real estate linkages: International evidence

Chyi Lin Lee, Simon Stevenson and Hyunbum Cho

Journal of International Money and Finance, 2022, vol. 127, issue C

Abstract: Futures contracts focused on listed real estate firms have increased in popularity in recent years, with strong developed markets now established in Australia, Europe, Japan, and the United States. This study builds upon what is still relatively small literature to consider two key elements. Firstly, using the approach of Bessembinder & Seguin (1992), we examine whether futures trading leads to a stabilization of listed real estate. The results show that the inception of listed real estate futures contracts does have a stabilization effect by improving the market efficiency and reducing market noise in international real estate stocks. Secondly, we assess the impact of futures trading on price discovery using a Spline-GARCH model, panel analysis, and a Granger causality test. In particular, we examine the linkages with underlying private real estate. The empirical results reveal that reduced market noise of real estate stocks via the futures trading improves the price discovery process, leading to enhanced linkages between public and private real estate, as well as market fundamentals.

Keywords: Index futures; REITs; Price discovery; Spline-GARCH; International; Private real estate; REIT futures; Securitized real estate; Volatility modelling (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:127:y:2022:i:c:s0261560622000961

DOI: 10.1016/j.jimonfin.2022.102693

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