Comovement of international real estate securities returns: a wavelet analysis

Abstract

The comovement of equity markets is of crucial importance for portfolio diversification and risk management. In this study, we utilise the wavelet analysis to examine the comovement among international securitised real estate markets as well as the cross‐market comovement between the stock and securitised real estate markets. As a novel approach, wavelet analysis has not yet been applied to the real estate field. Its advantage lies in that it allows us to assess the comovement in the time and frequency domains simultaneously. Using it, we carry out the study for six countries, namely US, UK, Japan, Australia, Hong Kong and Singapore. Our findings highlight the importance of considering both the time‐ and frequency‐varying features of the comovement in designing international portfolios.

Keywords:

• wavelet analysis
• comovement
• international real estate securities markets
• portfolio diversification

Notes

1. The energy of a function is defined to be the squared function integrated over its domain.

2. We are grateful to an anonymous referee for bringing up this point.