No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Risk and Return Characteristics of Property Indices in Emerging Markets
Abstract
Little is known about the performance and possible diversification benefits from real estate investments in emerging capital markets. During the period examined, property indices experienced relatively high total risk and low returns, but only a few of these indices underperformed on a risk-adjusted basis. Real estate investments offered diversification opportunities to equity market investors in emerging markets as well as to real estate and equity market investors in developed markets. Policy-makers should recognize that there is a tradeoff between potential benefits from keeping capital in their domestic markets versus reductions in diversification benefits available to domestic investors.
... Fourth, an examination and comparison of inflation-hedging features of property stocks in multiple developed and emerging markets will shed additional light on the debate of the differences between developed and emerging property markets. Numerous studies have compared the performance and diversification characteristics between developed and emerging property markets (Barry et al. 1996;Barry, Rodriguez 2004), while there is far less formal attention has been place to the inflation-hedging properties of real estate stocks. This study, therefore, is crucial for investors and policy-makers to further recognise the dissimilarities between emerging and developed property markets. ...
... As it can be seen from Table 2, real estate stocks in emerging markets are very volatile in which the standard deviation statistics of the Czech Republic (15%) and Poland (10.9%) are considerably higher than the UK (4.5%), France (4.9%) and Germany (7.4%). The results provide some support for the finding of Barry and Rodriguez (2004) that property indices in emerging markets are more volatile than developed markets. Another important observation is the average monthly inflation rates in emerging markets are also relatively higher than developed markets. ...
... Specifically, the results confirm that real estate stock investors may experience lower returns as a result of inflation over the short run, although real estate stocks in developed markets are effective risk management tools to hedge the inflation risk over the long run. Furthermore, investors, particularly international property investors should also aware of the fact that emerging markets not only have different risk and return characteristics (Barry, Rodriguez 2004), but also have dissimilar inflationhedging properties compared to developed markets. The unique inflation-hedging characteristic in emerging markets should also be considered in their investment decision making. ...
This study examines the inflation-hedging properties of European real estate stocks in developed and emerging markets over 1990 to 2011. The Fama and Schwert model and a dynamic ordinary least squares (DOLS) regression were employed to study the inflation-hedging characteristics of European real estate stocks over the short run and long run. The empirical results show little inflationhedging ability of European real estate stocks over the short run. Over the long run, developed real estate stocks provide a positive inflation hedge against expected inflation, while no similar evidence is found in the emerging markets. The findings suggest that the inflation-hedging properties of real estate stocks are related to the institutional involvement in the real estate stock markets. The finding could have profound implications to institutional investors.
... Another asset class known for its hedging function against inflation is real estate. ( Barry and Rodriguez, 2004) analyze the risk and return properties of real estate in emerging markets. (Hasanov and Dacy, 2009) find that the real returns on residential property are positive and not very volatile, and therefore, residential property acts as an inflation hedge. ...
This article aims to understand how aversion to interest income in Islam may influence the demand for real estate and gold when inflation is rampant. According to Markowitz's mean-variance model, an optimal portfolio is one that blends maximum return with minimum variance. In investment portfolios, real estate and gold serve as inflation hedges. For religious reasons, many Muslims exclude interest-earning assets from their portfolios, however. This paper explores how this attitude influences the hedging role of real estate and gold when inflation is rampant. We compare optimal portfolios that include and do not include interest-earning assets. In our calculations, we use monthly Turkish data from 1997 until 2018.
Our analysis shows that the best hedging instrument against inflation is an interest-earning asset. In its absence, the role of real estate and gold as inflation hedges markedly increases: For a medium-return and medium-risk portfolio, for instance, the portfolio share of gold holdings increases from 3.16% to 58.43% and that for real estate increases from 14.97% to 24.06%.
This paper is a pioneering work on the influence of Islam on the roles of real estate and gold as inflation hedges when inflation is rampant. It provides an explanation from financial theory for the strong real estate and gold demand in Turkey in the past two decades.
... Our second robustness test is concerned with the role of developing real estate markets, as the baseline analysis only focuses on 11 developed real estate markets. Importantly, common stocks from emerging markets have vastly different investment characteristics than stocks from developed markets (Bekaert et al., 1998), particularly in the real estate sector (Barry and Rodriguez, 2004;. To enhance the specificity of the evidence, we expand our dataset by including 11 developing real estate markets, namely Brazil, China, Czech Republic, Egypt, India, Indonesia, Malaysia, Mexico, South Africa, Thailand and Turkey. ...
Real estate securities have distinct characteristics that differentiate them from stocks generally. Key amongst them is that underpinning the firms are both real and investment assets. Therefore, the connections between the underlying macroeconomy and listed real estate firms are of heightened importance. To consider the linkages with macroeconomic fundamentals, we extract the ‘low-frequency’ volatility component from aggregate volatility shocks in 11 international securitised real estate markets using Engle and Rangel's (2008) Spline-GARCH model. The analysis reveals that the low-frequency volatility of real estate securities has strong and positive association with most of the macroeconomic risk proxies examined. Differences between real estate securities and common stocks have also been identified.
... Recorded historical performance of emerging markets has resulted in the gross generalization that these markets, overall, are volatile and that they offer diversification prospects for global investors. With regard to real estate investment performance, there is little evidence as to whether these investments in emerging markets offer significant diversification prospects for international investors (Barry and Rodriguez, 2004). ...
The purpose of this paper is to establish the barriers to entry in African real estate markets from a South African investor's perspective. Questionnaires were administered to 36 listed property companies on the Johannesburg Stock Exchange and data on diversification strategies was gathered from annual reports. We find that property rights are the most substantial market selection criteria that South African listed real estate companies consider and the main barrier to entry into the African markets is legal and title risk. We also find that geographic diversification within South Africa is a strategy mostly adopted by listed South African real estate companies. Central Africa is ranked as the region with the highest criteria for barriers to entry while Nigeria ranked highest in terms of country. Ghana is an investment destination for South African real estate investors. For African countries to attract real estate investment from South Africa, they need to improve their legal and property rights regulations.
... Extraordinary events in the market often give rise to high losses in the market, and events such as those of October 1987, February 1994 and the more recent subprime mortgage crisis often are the major causes for market distortions in developed markets. The literature (Longin, 2000;Barry & Rodriguez, 2004;Lee, Shie, & Chang, 2012), shows that emerging markets suffer many crises stemming from political disturbances or misguided economic policies, among other sources. ...
The study evaluated the sensitivity of the Value- at- Risk (VaR) and Expected Shortfalls (ES) with respect to portfolio allocation in emerging markets with an index portfolio of a developed market. This study utilised different models for VaR and ES techniques using various scenario-based models such as Covariance Methods, Historical Simulation and the GARCH (1, 1) for the predictive ability of these models in both relatively stable market conditions and extreme market conditions. The results showed that Expected Shortfall has less risk tolerance than VaR based on the same scenario-based market risk measures
... In a later study, Eichholtz, et al. (1998) identify " continental factors " in Europe and North America and again show that real estate investors can find diversification benefits across continents. More recently Barry and Rodriguez (2004) analyze the correlation of returns and risk adjusted performance of several emerging and developed countries' property markets, and conclude that investors in real estate should allocate part of their portfolios outside their home country. Due primarily to the unavailability of high frequency real estate stock price data for individual countries, few papers have concentrated on regional diversification benefits (that is diversification benefits that can be attained across countries in a specific region/continent) within either a real estate only or a mixed asset portfolio. ...
This paper examines the dynamic interdependence among the securitized property markets of six major countries and the US. Long-run results indicate that over a period beginning January 1990 and ending October 2007, the property markets of Australia, Hong Kong, Japan, UK and US are tied together, implying that from the perspective of the US investor, only the markets of Netherlands and France provide the greater diversification benefits in the long-run. Further, the US and Japan are found to be the sources of common trends that "drive" the five (cointegrated) markets toward the long-run equilibrium relationships. Finally, short-run analyses confirm the "global dominance" of the US and Japanese property market in that they each lead but are not led by any of the international property markets. Thus US investors can derive diversification benefits from investing in many of these public property markets both in the long-run and in the short-run.
... " They find that real estate investors in Europe and North America can exploit diversification opportunities in continents other than their own, while investors in the Asia–Pacific region can attain diversification benefits in their own continents. Focusing on several emerging and developed property markets, Barry and Rodriguez (2004) also conclude that investors in real estate should allocate part of their portfolios outside of their home country. More recently, however, Idzorek, Barad and Meier (2006) illustrate that over the 1990–2005 period, incorporating North American real estate in U.S. multiclass portfolios improved the risk-adjusted performance of the portfolios but including international (European and Asian) real estate did not. ...
This article examines the degree of interdependence among the securitized property markets of six major countries and the United States. Long-run results indicate that, over a period beginning January 1990 and ending August 2007, the property markets of Australia, Hong Kong, Japan, the United Kingdom and the United States are tied together, implying that from the perspective of the U.S. investor the markets of the Netherlands and France provide the greater diversification benefits. Further, the United States and Japan are found to be the sources of the common trends, suggesting that the two larger property markets lead the five (cointegrated) markets toward the long-run equilibrium relationships. Copyright (c) 2009 American Real Estate and Urban Economics Association.
Firstly the set of decision-making units for venture capital of real estate project was introduced and the index system was built, meanwhile, the vectors set of index weight was given according to the diversity of risk-bearing ability, fund scale, level of management, then, using the method of DEA, an evaluation model was established for the decision-making of venture capital of real estate project by analyzing the influential factors. The validity of this model was proved through the empirical analysis and this provided the quantitative gist for the management and decision-making of investment safety.
This paper examines the long-run relationships between the REIT indices of the UK, Turkey and Israel in the Euro-Med zone with that of MSCI US REIT Index by using weekly data over the period 2003Q3 through 2009Q3, which includes the latest US subprime mortgage crisis and its effects on global stock markets. Although our EG test results do not indicate a long-run relationship, after taking account of the structural changes by applying the GH test, we find a long-run interaction between the REIT indices of UK and Israel with that of the US. However, our results indicate the lack of co-movement between REIT index of Turkey with the US. In addition, our dynamic OLS test results indicate a perfect relationship between the UK and the US indices. Our findings show that international investors who make long-term investments can only gain from diversifying into the real estate market of Turkey among the involved markets in the Euro-Med zone.
Company real estate (CRE) means the real estate such as land and buildings which owned by non-real estate companies in order to support the operation and development of the enterprise. In this paper, we will see the difference of CRE in different industries through comparative analysis of all the data. We take the empirical analysis methods and build the regression model based on the data from the listed non-real estate companies in Shenzhen Stock Exchange to analyze the relationship between a property-intensive non-real estate company's number of CRE holding and it's market performance. In this way we can understand why there are a plenty of non-real estate companies hold the real estate asset as investment, even for some non-real estate companies, real estate asset have been their largest asset projects. In some countries the real estate assets owned by some largest non-real estate company are compared in it in some big real estate.
This research explores the risk associated with the stocks prices in the seventeen selected companies that are listed in Indian BSE (100) National as well as portfolios of investment that are constructed from these seventeen companies employed. Additionally, for considering the possibility of international diversification, construction of portfolios of investment form stock price indexes in various emerging markets and developed countries of the world is considered. Correlations for domestically as well as internationally diversified portfolios are computed to unveil the relationship between stock prices of various firms as well as domestic and internationally diversified portfolios of investments. Further, to understand the effect of diversification on the risk associated with each of the portfolios of investments employed, value at risk analysis (VaR) is undertaken for studying the benefits associated with domestic as well as international diversification (if any).The study results show that domestic diversification lowers the expected losses associated with each of the domestic portfolios of investment employed where the international diversification substantially mitigates the portfolio risks. Results from VaR analysis reveal that diversification lowers the portfolio risks and additional reduction in portfolio risks is realized by international diversification.
The aim of this paper is to examine long‐run relationships and short‐run causal linkages among the public property markets of the Asia‐Pacific region (Australia, Hong Kong, Japan and Singapore) and the US over a period beginning January 2000 and ending March 2006. Long‐term results indicate that, from the perspective of the US investor, the markets of Hong Kong and Japan provide the greater diversification benefits. Short‐run causality tests show no significant lead‐lag relationships between the property market of the US and those of the Asia‐Pacific markets, indicating a wide range of possible diversification opportunities. Thus, US investors in international real estate markets can derive diversification benefits from investing in these public property markets both in the long and short run.
In this paper real estate equity markets are examined. Time-varying Hurst exponents are estimated for real estate equity markets and empirical evidence suggests that such markets possess strong long range dependence for both returns and volatility. This is true for both developed and Asian emerging real estate equity indices. This evidence has important implications for asset pricing and portfolio and risk management.
We investigate the net effect between diversification benefit and information cost of international real estate mutual funds
from three dimensions: whether investors can benefit from investing in international real estate mutual funds, whether managers
of international real estate mutual funds possess superior market knowledge and timing abilities, and whether investors are
motivated by returns or diversification. Our findings are threefold. First, the results show that international real estate
mutual funds perform better and are less risky than domestic real estate mutual funds before Jun 2007. That is, diversification
benefits outweigh the information costs, and investors therefore gain from investing in international real estate mutual funds.
However, the benefit is reduced because of the economic shock of sub-prime financial crisis. Second, on average, neither international
mutual fund managers nor domestic mutual fund managers possess market timing abilities. Finally, we find that fund flows are
driven by investors’ return-chasing behaviors and fund size, but not by diversification purpose.
KeywordsDomestic real estate mutual funds–Fund performance–International real estate mutual funds–Market timing ability–Mutual fund flows–Stock selection ability
Although the relationship between economic freedom and equity returns has been investigated in the literature, the Middle East and North Africa (MENA) equity markets were usually excluded. The aim of this paper is to fill in this gap by examining the relationship between economic freedom index and equity market returns after accounting for a number of control variables. Evidence shows that changes in economic freedom have a positive impact on equity market returns, which are not explained by business-cycle control variables related to expected returns, and that legal structure and security of property rights have the most significant impact.
Executive Summary. Previous research has questioned the stability of international equity diversification. This study examines whether foreign real estate exists in a more segmented market and whether foreign real estate provides any diversification benefit beyond that obtain-able from foreign stocks. Using data encompassing the stock market crash of 1987, foreign real estate was found to have a lower correlation with U.S. stocks than foreign stocks. This lower correlation is shown to be stable through time as foreign real estate has a lower correla-tion in nearly the entire time period. Foreign real estate was also found to have a significant weight in efficient international portfolios.
This paper investigates the return performance of publicly traded real estate companies. The analysis spans the 1984-99 time period and includes return data on over 600 companies in 28 countries. The return data reveal a substantial amount of variation in mean real estate returns and standard deviations across countries. Moreover, standard Treynor ratios, which scale country excess returns by the estimated beta on the world wealth portfolio, also reveal substantial variation across countries in excess real estate returns per unit of systematic risk. However, when we estimate Jensen's alphas using both single and multifactor specifications, we detect little evidence of abnormal, risk-adjusted returns at the country level. We do, however, find evidence of a strong world-wide factor in international real estate returns. Furthermore, even after controlling for the effects of world-wide systematic risk, an orthogonalized country-specific factor is highly significant. This suggests that real estate securities may provide international diversification opportunities. Copyright 2002 by Kluwer Academic Publishers
This article is the winner of the International Real Estate Investment/Portfolio Management manuscript prize (sponsored by Jones Lang LaSalle) presented at the 1999 American Real Estate Society Annual Meeting.
This study examines the potential diversification opportunities arising from the extension of real estate portfolios into an international environment. Using data for ten countries, the article compares the diversification benefits obtained from both real estate securities and hedged indices. The hedged indices are constructed in line with the methodology proposed by Giliberto (1993) and are examined as a potential alternative proxy for the direct market. The results indicate that while benefits do arise from international diversification, the results tend to be statistically significant only when local returns are used and no constraints are imposed on the optimal portfolios. In addition, there are concerns over the reliability of the mean return and correlation coefficients obtained using the hedged indices.
Executive Summary. This article refines previous comparisons of “within real estate” portfolio diversification by adding controls to the experimental design to determine why one strategy is superior to another. Two “new” economic diversification methods were among the thirteen strategies tested. The best strategy used sixteen dimensions (four property types in four geographic regions). The return/risk ratio was found to be more important than correlation matrix in explaining the ranking of diversification strategies. The article also discusses how the data's time period and market membership affect the weighting recommendations.
Executive Summary. This study uses the Emerging Markets Data Base from the International Finance Corporation to examine emerging market real estate as an asset class using data on companies classified as real estate firms by SIC codes. It documents the paucity of such firms until very recent years and notes some limitations in their use as proxies for the underlying real estate investment opportunities. Nevertheless, the results indicate that real estate in emerging markets provides diversification benefits to common stock portfolios and real estate portfolios. Emerging market real estate has experienced high risk in recent years, but the returns from emerging market real estate have generally low correlations with the returns on portfolios of developed-market stocks and/or real estate. This study also describes investment restrictions that limit foreign access to direct investment in emerging market real estate. The relaxation of such restrictions in the case of other asset classes has been met with significant increases in market values. Finally, institutional facts about emerging markets that have acted to limit public ownership of real estate assets within those markets are described.
Executive Summary. Previous research has documented the risk-reduction benefits of international real estate securities to a real estate portfolio, but has stopped short of examining the effect of these securities on a mixed-asset portfolio. To this end, this study evaluates international real estate securities within the framework of a mixed-asset portfolio consisting of U.S. stocks, U.S. corporate bonds, U.S. real estate securities, and international common stocks. Each asset class was examined from a risk-return perspective and the results indicate that international real estate securities offer significant diversification benefits for a U.S. mixed-asset portfolio for a U.S. investor. In order to examine the risk-reduction potential from international property stocks on a U.S. mixed-asset portfolio, efficient frontiers were constructed for each combination of asset classes. This study covers a thirteen-year time span from 1984 through 1997.
Real estate asset management has been and will continue to be a topic of great interest. Specifically, does real estate warrant inclusion in an efficient portfolio? And if so, how much should be invested in real estate? This article reviews the extant literature in the area of real estate diversification and helps identify the reasons that there exists so much divergence in the answer to the question, “How much in real estate?” Moreover, diversification as it relates to real estate is discussed in reference to both mixed-asset portfolios and for diversification within the real estate asset class. Directions for future research are also discussed.
Capital markets in developing countries have become an important asset class. These emerging markets are commonly associated with high returns, high volatility, and diversification benefits for investors in developed markets. We used the Emerging Markets Data Base provided by the International Finance Corporation to examine the risk and return characteristics of emerging markets. Contrary to the results often presented in the popular press, we found that these markets have not produced high levels of compound returns relative to U.S. stock markets for the 20-year time period ending in June 1995. They have experienced a high level of volatility, but they also have consistently provided diversification benefits when combined with developed market portfolios.
This paper examines the implications of market microstructure for asset pricing. I argue that asset pricing ignores the central fact that asset prices evolve in markets. Markets provide liquidity and price discovery, and I argue that asset pricing models need to be recast in broader terms to incorporate the transactions costs of liquidity and the risks of price discovery. I argue that symmetric information-based asset pricing models do not work because they assume that the underlying problems of liquidity and price discovery have been solved. I develop an asymmetric information asset pricing model that incorporates these effects.
Testing the hypothesis that international equity market correlation increases in volatile times is a difficult exercise and misleading results have often been reported in the past because of a spurious relationship between correlation and volatility. Using “extreme value theory” to model the multivariate distribution tails, we derive the distribution of extreme correlation for a wide class of return distributions. Empirically, we reject the null hypothesis of multivariate normality for the negative tail, but not for the positive tail. We also find that correlation is not related to market volatility per se but to the market trend. Correlation increases in bear markets, but not in bull markets.
New evidence on the correlation patterns of various real estate returns with inflation is presented. Returns on a wide array of real estate, nonresidential as well as residential, are investigated. Stock and bond returns are also analyzed for comparison purposes. Extensive heterogeneity is found in real estate return correlations with inflation. Nonresidential property returns are most strongly positively correlated with inflation, although the appreciation in owner-occupied homes is also positively associated with inflation. However, REIT returns tend to be strongly negatively correlated with inflation. In this respect, they look more like traditional stocks and bonds than any other type of real estate. Finally, new evidence on return correlations with energy prices is also presented. Nonresidential real estate performs best here, too, although no real estate asset fully compensates investors for adverse energy price shocks.
This paper applies a new statistical technology for identifying regime shifts to analyze recent data on real estate and equity markets in eight developing Far Eastern countries in the 1992-1998 time period. We find that regime shifts in volatility occur in the summer of 1997; however, most of the regime shifts in returns occur in the spring of 1998. While the clustering of regime breaks does not seem to follow any obvious pattern, the country's exposure to trade and firm leverage are important. An analysis of Granger causality suggests that, in most cases, equity returns cause real estate returns but the converse is not true. We also find two-way causality in volatility, suggesting that a common factor drives volatility in these markets. Finally, we provide evidence that the regime shifts generally imply higher relative risk for real estate securities after the estimated breaks. Copyright 2002 by the American Real Estate and Urban Economics Association.
The relationship between stock prices and real estate prices has been the subject of substantial debate in both the academic and practitioner literatures. Existing studies have focused on the time series of stock and real estate returns using data from a single country, such as the U.S. By necessity, these studies examine return and price changes over short intervals, creating a bias when property values are smoothed from year to year. Using data from 17 different countries over 14 years, this paper examines the relation between stock returns and changes in property values and rents. Consistent with other country-specific studies, we find that, with the exception of Japan, the contemporaneous relation between yearly real estate price changes and stock returns is not statistically significant. However, when the data are pooled across countries and when we look at longer measurement intervals, a significant relation between stock returns and both rents and value changes becomes apparent. Real estate prices are also found to be significantly influenced by GDP growth rates and provide a good long-term hedge against inflation but a poor year-to-year hedge. Copyright American Real Estate and Urban Economics Association.
This paper examines the extent to which real estate returns are driven by continental factors. This subject is relevant for determining the country allocation of international real estate portfolios. If returns are driven by a continental factor, investors should look for diversification opportunities outside their own continent. This paper finds strong continental factors in North America and especially in the United States. For the Asia-Pacific region, real estate returns are not driven by a continental factor. The results suggest that, for European, North American and Asia-Pacific real estate portfolio managers, the Asia-Pacific region provides attractive international diversification opportunities. Copyright American Real Estate and Urban Economics Association.
International real estate related securities are investigated to see whether they offer any incremental diversification benefits over foreign stocks using mean-variance analysis together with a multifactor latent variable model. Diversification benefits are found to be primarily driven by unanticipated returns which are partially driven by changes in exchange rate risk. Although exchange rate risk accounts for a larger portion of the return fluctuation in real estate related securities relative to common stocks, international real estate securities provide some incremental diversification benefits over common stocks even if currency risks are hedged. Copyright American Real Estate and Urban Economics Association.
The current study investigates whether real estate securities continue to act as a perverse inflation hedge in foreign countries given security design differences. Both a stationary and a nonstationary risk free rate are alternatively used in conjunction with the methodology of Fama and Schwert (1977) and also the methodology of Geske and Roll (1983) to investigate this question. Real estate securities provide a worse hedge against inflation relative to common stocks in some countries and are comparable to stocks in other countries. Also, evidence supports the reverse causality model of Geske-Roll. Copyright American Real Estate and Urban Economics Association.
The emergence of new equity markets in Europe, Latin America, Asia, the Mideast and Africa provides a new menu of opportunities
for investors. These markets exhibit high expected returns as well as high volatility. Importantly, the low correlations with
developed countries’ equity markets significantly reduces the unconditional portfolio risk of a world investor. However, standard
global asset pricing models, which assume complete integration of capital markets, fail to explain the cross section of average
returns in emerging countries. An analysis of the predictability of the returns reveals that emerging market returns are more
likely than developed countries to be influenced by local information.
We study a new class of unconditional and conditional mean-variance spanning tests that exploits the duality between Hansen-Jagannathan bounds (1991) and mean-standard deviation frontiers. The tests are shown to be equivalent to standard spanning tests in population, but we document substantial differences in the small sample performance of alternative tests. Our empirical application examines the diversification benefits from emerging equity markets using an extensive new data set on U.S. and U.K.-traded closed-end funds. We find significant diversification benefits for the U.K. country funds, but not for the U.S. funds. The difference appears to relate to differences in portfolio holdings rather than to the behavior of premiums in the United States versus the United Kingdom. Copyright 1996 by American Finance Association.
Returns in emerging capital markets are very different from returns in developed markets. While most previous research has focused on average returns, we analyze the volatility of the returns in emerging equity markets. We characterize the time-series of volatility in emerging markets and explore the distributional foundations of the variance process. Of particular interest is evidence of asymmetries in volatility and the evolution of the variance process after periods of capital market reform. We shed indirect light on the question of capital market integration by exploring the changing influence of world factors on the volatility in emerging markets. Finally, we investigate the cross-section of volatility. We use measures such as asset concentration, market capitalization to GDP, size of the trade sector, cross-sectional volatility of individual securities within each country, turnover, foreign exchange variability and national credit ratings to characterize why volatility is different across emerging markets.
We examine the risk and return characteristics of publicly traded real estate companies from 14 countries over the period 1990 to 2001. Our data are monthly country-level commercial real estate indexes constructed by the European Public Real Estate Association (EPRA). We find substantial variation in mean real estate returns and standard deviations across countries. Using various global- and country-level factor models, we find that there is evidence of a strong global market risk component, measured relative to the Morgan Stanley Capital International world index, in most countries. However, even after controlling for the effects of global market risk, an orthogonalized country-specific market risk factor is highly significant, especially for real estate indexes in Asia-Pacific markets. We find that a country-specific value risk factor has some explanatory power in addition to the country-specific market factor, but U.S.-based market, value and size risk factors do not provide any additional explanatory power. These findings imply that the international diversification opportunities with real estate companies are more complex than previously thought. Copyright 2003 by the American Real Estate and Urban Economics Association
We propose a measure of capital market integration arising from a conditional regime-switching model. Our measure allows us to describe expected returns in countries that are segmented from world capital markets in one part of the sample and become integrated later in the sample. We find that a number of emerging markets exhibit time-varying integration. Some markets appear more integrated than one might expect based on prior knowledge of investment restrictions. Other markets appear segmented even though foreigners have relatively free access to their capital markets. While there is a perception that world capital markets have become more integrated, our country-specific investigation suggests that this is not always the case. Copyright 1995 by American Finance Association.
Understanding volatility in emerging capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. We provide an approach that allows the relative importance of world and local information to change through time in both the expected returns and conditional variance processes. Our time-series and cross-sectional models analyze the reasons that volatility is different across emerging markets, particularly with respect to the timing of capital market reforms. We find that capital market liberalizations often increase the correlation between local market returns and the world market but do not drive up local market volatility.
Emerging Markets: New Opportunity for Improving Global Portfolio Performance 38 See Gyourko and LinnemanThe Effect of International Real Estate Securities on Portfolio Diversification
- Errunza
- R Vinhang
Errunza, Vinhang R., “Emerging Markets: New Opportunity for Improving Global Portfolio Performance,” Financial Analyst Journal, Volume 39, Number 1, 1983, 51-58. 38 See Gyourko and Linneman (1988). r23 Gordon, Jacques N., Todd A. Canter, and James R. Webb, “The Effect of International Real Estate Securities on Portfolio Diversification,” Journal of Real Estate Portfolio Management, Volume 4, Number 2, 1998, 83-91
Currency crashes and risk measurement
- Shivakumar
Shivakumar, R., 1999. Currency crashes and risk measurement. Emerging Markets Quarterly 3 (3), 5 – 13.
Standard & Poors Emerging Stock Markets Factbook. Standard & Poors Corp
- Standard
Standard and Poors, 2000. Standard & Poors Emerging Stock Markets Factbook. Standard & Poors Corp., New York, New York.
Emerging stock markets: risk, return and performance. The International Finance Corporation
- C B Barry
- J W Peavy
- M Rodriguez
Barry, C.B., Peavy, J.W., Rodriguez, M., 1997. Emerging stock markets: risk, return and performance. The International Finance Corporation, 1993. IFC Index Methodology. International Finance Corporation, Washing-ton, D.C. Introducing the Salomon Brothers World Equity Index, 1994. Available at http://www.ssbgei.com/data/pdf/ introdoc.pdf.
The growth and performance of international public real estate markets
- Mueller
Mueller, G.R., Anderson, R.I., 2002. The growth and performance of international public real estate markets. Journal of Real Estate Portfolio Management 8 (4), 128 – 139.
A bird's eye view of global real estate markets. Prudential Real Estate Investors. Prudential Financial Commercial real estate return performance: a cross-country analysis
- Y Liang
- N M Gordon
Liang, Y., Gordon, N.M., 2003. A bird's eye view of global real estate markets. Prudential Real Estate Investors. Prudential Financial, Inc., Newark, NJ, USA, March. Ling, D., Naranjo, A., 2002. Commercial real estate return performance: a cross-country analysis. Journal of Real Estate Finance and Economics 24 (1 and 2), 119 – 142.
Asian Currencies: Crisis, Contagion, and Containment " Emerging Markets Quarterly
- Ravi Bulchandani
Bulchandani, Ravi, " Asian Currencies: Crisis, Contagion, and Containment " Emerging
Markets Quarterly, Volume 2, Number 1, 1998, 8-13.
Emerging Stock Markets: Risk, Return and Performance, The Research Foundation of the Institute of Chartered Financial Analysts
- Christopher B Barry
- W John
- Mauricio Peavy
- Rodriguez
Barry, Christopher B., John W. Peavy, and Mauricio Rodriguez, Emerging Stock
Markets: Risk, Return and Performance, The Research Foundation of the Institute of
Chartered Financial Analysts, Charlottesville, VA, 1997.
- Ronald L Iman
- W J Conover
Iman, Ronald L. and W.J. Conover, Modern Business Statistics, John Wiley & Sons,
New York, 1989.
International real estate returns: a multifactor, multicountry approach
- Bond
Asian currencies: crisis, contagion, and containment
- Bulchandani