Spillovers between US Real Estate and Financial Assets in Time and Frequency Domains

Aviral Tiwari, Christophe André and Rangan Gupta

No 201947, Working Papers from University of Pretoria, Department of Economics

Abstract: Real estate, either in physical or securitised form, provides valuable diversification opportunities to investors. However, spillovers reduce the benefits of portfolio diversification, especially in times of crisis, when asset returns tend to be more correlated. This paper assesses the strength and time variation of spillovers between returns on residential real estate, real estate investment trusts (REITs), stocks and bonds in the United States, using the Diebold-Yilmaz (DY) (2012) approach in the time domain and the Baruník-Křehlík (BK) (2018) methodology in the frequency domain. On average, spillovers between housing, stock and bond returns are relatively modest and shocks to stock and bond markets affect housing returns more than the other way round, even though net spillovers from housing to other assets spiked in the aftermath of the subprime crisis. Spillovers in both directions are much stronger between REITs and stocks than between REITs and housing. The analysis in the frequency domain highlights the persistence of effects from shocks originating in the housing market, particularly in the aftermath of the subprime crisis.

Keywords: Real estate; Stocks; Bonds; Spillovers; Portfolio management (search for similar items in EconPapers)
JEL-codes: C32 G10 G11 R30 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2019-06
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (2)

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Journal Article: Spillovers between US real estate and financial assets in time and frequency domains (2020)
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