The Dynamics of Return Volatilty and Systematic Risk in International Real Estate Security Markets

Abstract

We find clustering, predictability, strong persistence and asymmetry in the conditional volatilities of national, regional and world real estate security markets. The world real estate security market volatility has a positive impact on the time‐varying real estate security market betas of Asia‐Pacific, Hong Kong, Singapore and Malaysia, and a negative impact on the real estate security market betas of Europe and the UK. The extra country–specific market volatility and global market volatility during the Asian financial crisis period impose a larger size influence than the volatility during total period in some markets. In addition, our results appear to favor the time‐varying beta estimates relative to the world real estate security market index over the world stock market index. The implications for international investors and global portfolio managers is that failing to understand the complex dynamics of real estate security market return, volatility and systematic risk relative to the world markets may make it less possible to ascertain the true potential of international real estate diversification that includes Asia‐Pacific securitized real estate.

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