Are international securitized property markets converging or diverging?

• We test cointegration among three groups of securitized real estate indices.
• Our new framework can reflect the changes in cointegration dynamics over a period.
• The three groups of markets follow a similar cointegration trend.
• North America is the source of cointegration, while Asia and Europe are recipients.
• This study has important implications to investors and related authorities.

This study establishes a new framework which combines the recursive model with the Fractionally Integrated Vector Error Correction Model (FIVECM) to investigate the cointegration relationship among 9 securitized real estate indices, which are divided into three groups: Asian, European and North American groups. Our new combined framework has the advantage of reflecting the changes in cointegration dynamics over a period of time instead of a single result for the whole period. The results show that the three groups of markets follow a similar cointegration trend: the cointegration relationship gradually increases before the global financial crisis, reaches a peak during the crisis, and dies down gradually after the crisis. However, cointegration among Asian and European countries occurs at a much later time than cointegration among North American countries does, showing that North America is the source of cointegration, while Asia and Europe are the recipients. This study has important implications to investors and related authorities that investors can adjust their portfolio according to the test results to reduce their risk, while related authorities can take appropriate measures to stabilize the economy and mitigate the effects of financial crises.