Time‐varying performance of four Asia‐Pacific REITs

Abstract

Purpose - The aim of the paper is to determine the dynamic relationships between REIT returns and those of other financial and real unsecuritized assets internationally. Design/methodology/approach - Using a multi-factor model the flexible least squares (FLS) coefficients of REIT returns against stock, bond and direct property returns are derived for the REIT markets of the USA, Australia, Japan and Singapore. Findings - The correlation between REIT returns and those of other financial and real assets varies not only across countries but also inter-temporally. REITs can certainly provide diversification benefits to a multi-asset investment portfolio. However, due to the time-varying nature of the correlation, active management is advised and REITs should be not be viewed as a complete substitute for direct property investment. Research limitations/implications - There are two major limitations to the study. Firstly, the sampling periods used are not the same across the countries due to differing market maturity. Secondly, there are also sheer differences in market sizes. However, as REIT markets around the world continue to grow and become more mature in terms of their breath and depth, there will be a richer set of data available for more in-depth analyses based on the methodology presented here. Practical implications - The conclusions on both mature and emerging REIT markets could provide some ideas for international investors as to how they should formulate their time-varying investment strategies and reconstruct their portfolios as mature markets become more efficient and emerging ones more mature. Originality/value - The inclusion of Asian markets enables investigation of the correlation between REITs and different assets in respect not only of different market conditions, but also different geographical locations and market maturity. The international dimension of this paper may appeal to readers and investors who are interested in identifying diversification opportunities around the globe, especially so when the capital and property markets around the world are becoming more integrated and globalized.

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