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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Review of Financial Economics, Volume 18, Issue 2, April 2009, Pages 80–89
This study investigates the presence of common factors in the securitized real estate markets of the Untied States (US), United Kingdom (UK), Hong Kong (HK), and Singapore (SG). Using a combination of factor analysis and canonical correlation analysis on 10-year monthly return data for 142 real estate securities in the four markets, more common risk factors among real estate securities within a country than across countries are detected. In addition, there is at least one common securitized real estate market factor that is moderately correlated with the world real estate market, and to a lesser extent, with the world stock market. However, the degree of linkage across the four securitized real estate markets is much weaker than the strong linkages present across the four economies. It further appears that the extent to which correlations are found in international securitized real estate markets might largely be due to the increasing integrated nature of the world real economy, rather than a result of the globalization of financial markets. The results are preliminary, but indicative, and suggest that more studies exploring how common factors, together with the local market portfolio, could help explain the return-generating process of securitized real estate.
The correlation structure of international stock returns has received considerable attention from portfolio managers and academics as major international stock markets have experienced rapid deregulation and integration in recent years. Whilst some earlier stock market studies (e.g. Granger & Morgenstern, 1970) have indicated that the correlations among the returns of national stock markets are low and consequently their capital markets are less integrated, others such as Agmon (1972) have shown that there exists a significant relationship among his sample of four major stock markets. Similarly, international investors and global managers might also suspect that the returns of some major securitized (public) real estate markets such as the USA, UK, Hong Kong (HK) and Singapore (SG) are closely correlated. This is because real estate is a major capital asset that is comparable to the capitalization of the common stock or bond markets (Newell, Liow, Ooi, & Zhu, 2005).2 With recent studies, such as Conover, Friday and Sirmans (2002) and Steinert and Crowe (2001), highlighting the diversification benefits from international real estate in a mixed-asset portfolio, considerable attention has been given to various aspects of securitized real estate performance and their long-run equilibrium relationships and short-term linkages using co-integration and causality methodologies using aggregate real estate security indexes at the country level. Using monthly data of 142 firms from the four major securitized real estate markets of the US, UK, HK and SG from 1993–2003, this study makes at least two important contributions to the extant literature. The local factors for the individual countries are first estimated; the extent to which these factors are shared by the four countries in the macroeconomic context are investigated. The extent of correlation between any common risk factors and a world wealth portfolio using four world stock and world real estate market proxies is also tested to interpret the nature of the common factor(s). Overall, the results of this study would indicate whether there is presence of at least a world-wide factor in international securitized real estate returns, as well as the effect of country specific risk factors on real estate returns. The approaches and results generated from this study thus complement those of Ling and Naranjio (2002), Hamelink and Hoesli (2004) and Liow, Ooi, and Gong (2005) in international real estate market pricing. In addition, the results of this study should also prove useful to international property investors and even policy makers who might be interested in understanding how changes in some local and foreign macroeconomic variables could impact securitized real estate returns. For example, a significant relationship between the US economy and the performance of the securitized real estate markets of the UK, HK and SG might be expected, given the US-centric nature of the global economy. One might also expect the degree of correlation between the different securitized real estate markets to be different, due to the varying extent of integration with the world economy or a result of globalization of financial markets. Although it is beyond the objective of this study to further investigate this issue, the results should provide some preliminary, but indicative, evidence on significant relationships in international securitized real estate markets. In order to establish a background for this study, Section 2 provides a brief review of relevant literature. This is followed by the research methodology and data in Sections 3 and 4. The empirical results are then reported and discussed in Section 5. Section 6 concludes the study.
نتیجه گیری انگلیسی
In responding to the increasing trend in globalization and securitization of real estate, the main purpose of this study was to investigate the presence of common risk factors within and across four major securitized real estate markets; the US, UK, HK and SG, if they existed. Together these four markets represent 74% of the listed securitized global real estate market. In addition, whether any common factors found in the Asian markets (HK and SG) are correlated with those of highly developed markets (US and UK) was also examined. This study is of particularly meaningful after the Asian financial crisis in view of significant return of foreign capitals, mainly from the North America and European investors, to the Asian capital and real estate markets. The main findings are: (a) the number of securitized real estate market factors are 7, 7, 6 and 2 in the US, the UK, HK and SG, respectively; (b) securitized real estate returns are influenced by domestic economic forces and that the local market return plays a major role in the APT for international securitized real estate markets; (c) the four economies are closely related. In particular, the US economic indicators have a higher capability of accounting for the variances in the SG, HK and UK economies than vice versa; (d) the four securitized real estate markets share at least one risk factor. Additionally, there are additional links between some pairs of securitized real estate markets. However, the degree of linkage across the four securitized real estate markets is much weaker than the stronger linkages present across the four economies in general; (e) there is, at best, a moderate degree of linkage between the factor scores of international securitized real estate returns and key economic indicators across the four countries. However, it further appears that any cross-links between the two systems are mainly in one direction, since there are weaker cross-feedback effects from the economies to the financial markets; (f) Asian securitized real estate markets have a common factor that is moderately correlated with the American and United Kingdom markets; and (g) securitized real estate markets have common factors that are moderately correlated with the world real estate market, and to a lesser extent, with the world stock market. Although the empirical methodologies employed in this study appear not to generate significant methodological developments in the international real estate literature, they provide significant and unique insights into the correlation structure within and across international securitized real estate markets from a “common factor” perspective. Bearing in mind the shortcomings relating to smaller sample size, the sample selection bias and shorter span of study, this paper reveals that international securitized real estate markets share at least one risk factor that is moderately correlated with the global market (at least during the 1993–2003 sample period) as well as the strong economic interdependence of the USA, UK and two Asia-Pacific economies. More common risk factors among real estate securities within a country than across countries are detected. This reinforces the existence and importance of country specific factors in influencing international real estate returns. However, the degree of linkage across the four securitized real estate markets in this study is weaker than the strong linkages present across the four economies.8 Hence, the potential for portfolio diversification in international securitized real estate remains good. These empirical contributions are preliminary, but indicative. For example, the main findings of the study regarding the presence of common risk factor (s) in the international securitized real estate markets needs to be tested for other developed and emerging securitized real estate markets. Additional studies are definitely required to explore how common securitized real estate market factors, together with the local market portfolio, explain securitized real estate market performance from the APT perspective. Finally, as more and more Asian economies are interested in developing REIT type securitized real estate products, this paper hat focuses on the four major listed real estate markets around the globe is expected to enhance investors’ understanding on the role of Asian real estate companies in local and international investment portfolios.