Macroeconomic and Financial Determinants of Comovement across Global Real Estate Security Markets

Abstract

While there is a large literature on both diversification and contagion issues across global listed real estate markets, there is only a limited amount of research on the drivers of correlation dynamics. Using both local and U.S. dollar denominated returns, I model conditional correlations across listed real estate sectors and also with the global stock market. The empirical results show that financial factors, such as the relation with the respective equity market, volatility, the relative size of the real estate sector, and trading turnover all play an important role in the degree of comovement present. Furthermore, the results highlight the importance of macroeconomic variables in the relations observed. The results also highlight key differences when considering the correlation dynamics across listed real estate markets or with the global stock market.

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