Facts or fates of investors' losses during crises? Evidence from REIT-stock volatility and tail dependence structures

MeiChi Huang, Chih-Chiang Wu, Shih-Min Liu and Chang-Che Wu

International Review of Economics & Finance, 2016, vol. 42, issue C, 54-71

Abstract: This study provides insight into diversification opportunities during the housing crisis by observing time-varying co-movements between real estate investment trust (REIT) and stock assets in 2000–2014. Out-of-sample forecasts, which are conducted according to the asset-allocation problem, reveal a swing in REIT-stock lower tail dependence during the global financial crisis. The lower-tail dependence exceeds 0.8, and thus implies stronger cross-asset linkages and fewer diversification opportunities in asset busts. These findings further suggest that the range-based volatility (asymmetric CARR) model is superior to the return-based (GJR-GARCH) framework, particularly as the global financial crisis prevails. Positive economic values of dynamic strategies are more evident during the crisis than pre- and post-crisis subperiods. The mortgage spread and VIX are informative in predicting REIT-stock tail dependences, and out-of-sample economic values improve as the mortgage and term spreads are considered.

Keywords: Tail dependence; REIT (real estate investment trust); Copula; Range-based volatility; Asset bust (search for similar items in EconPapers)
JEL-codes: C10 C58 G11 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:42:y:2016:i:c:p:54-71

DOI: 10.1016/j.iref.2015.10.046

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