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Time-varying correlations in global real estate markets: A multivariate GARCH with spatial effects approach

Huaying Gu, Zhixue Liu and Yingliang Weng

Physica A: Statistical Mechanics and its Applications, 2017, vol. 471, issue C, 460-472

Abstract: The present study applies the multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) with spatial effects approach for the analysis of the time-varying conditional correlations and contagion effects among global real estate markets. A distinguishing feature of the proposed model is that it can simultaneously capture the spatial interactions and the dynamic conditional correlations compared with the traditional MGARCH models. Results reveal that the estimated dynamic conditional correlations have exhibited significant increases during the global financial crisis from 2007 to 2009, thereby suggesting contagion effects among global real estate markets. The analysis further indicates that the returns of the regional real estate markets that are in close geographic and economic proximities exhibit strong co-movement. In addition, evidence of significantly positive leverage effects in global real estate markets is also determined. The findings have significant implications on global portfolio diversification opportunities and risk management practices.

Keywords: Time-varying correlation; MGARCH; Spatial effects; Contagion effects; Real estate markets (search for similar items in EconPapers)
Date: 2017
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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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