Examining volatility spillover in Asian REIT markets

Abstract

This article provides international evidence on the effects of volatility spillover in Asian real estate investment trust (REIT) markets. Six Asian markets (Taiwan, Japan, Malaysia, Singapore, Hong Kong and South Korea) are examined through the generalized autoregressive conditional heteroscedasticity (GARCH) model with exogenous variables in the variance equation. Results show a negative spillover effect from the stock to REIT market, but a positive spillover from the bond to REIT market. During the financial crisis from 2007 to 2009, the negative volatility spillover from the stock to REIT market is significantly enhanced. This suggests that a prosperous stock market would decrease conditional volatility in the REIT market and the effect is more pronounced during the financial crisis.

Keywords:

• REITs
• volatility
• spillover effects
• financial crisis

JEL Classification:

• C22
• G15
• L85

Notes

¹ The first REIT in Asia was publicly traded in Japan in 2001. Subsequently, REITs of Singapore, South Korea, Taiwan, Malaysia and Hong Kong in Asia were first publicly traded in 2002, 2004, 2005, 2005 and 2005, respectively (Newell et al., 2010).

² Please note that our sample period is from 11 November 2005 to 4 November 2011 and so much of this timescale lies within the period of the global financial crisis.

³ This period is chosen according to other REIT studies such as Liow and Newell (2012).