Long-term Cointegrative and Short-term Causal Relations among U.S. Real Estate Sectors

Paul Gallimore (), J. Andrew Hansz (), Wikrom Prombutr () and Ying Zhang ()
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Paul Gallimore: Georgia State University
J. Andrew Hansz: California State University
Wikrom Prombutr: California State University
Ying Zhang: Fairfield University

International Real Estate Review, 2014, vol. 17, issue 3, 359-394

Abstract: We investigate long-term cointegrative and short-term causal relations among seven U.S. sectoral REITs. First, cointegration tests identify one long-term cointegrative relation among five of the sectors, which suggests that two of the sectors are outside the cointegrative space. Second, short-term Granger causality tests identify three leading and two following cointegrated sectors. Third, a proposed vector autoregressive model indicates that a stronger cointegrating effect is induced by declining real estate markets and a multivariate sensitivity regression model shows that unexpected inflation significantly and negatively influences the cointegrative disequilibrium. Lastly, our cointegration-based portfolio performance analyses show that the inferior performance of the all-sector market portfolio stems from containing the redundant cointegrated sectors which shatter portfolio diversification.

Keywords: Cointegration; Domestic Real Estate Sector; Error Correction Model; Portfolio Construction and Diversification; Vector Autoregressive Model (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2014
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