Article ID Journal Published Year Pages File Type
5083136 International Review of Economics & Finance 2016 18 Pages PDF
Abstract
This study provides insight into diversification opportunities during the housing crisis by observing time-varying co-movements between real estate investment trust (REIT) and stock assets in 2000-2014. Out-of-sample forecasts, which are conducted according to the asset-allocation problem, reveal a swing in REIT-stock lower tail dependence during the global financial crisis. The lower-tail dependence exceeds 0.8, and thus implies stronger cross-asset linkages and fewer diversification opportunities in asset busts. These findings further suggest that the range-based volatility (asymmetric CARR) model is superior to the return-based (GJR-GARCH) framework, particularly as the global financial crisis prevails. Positive economic values of dynamic strategies are more evident during the crisis than pre- and post-crisis subperiods. The mortgage spread and VIX are informative in predicting REIT-stock tail dependences, and out-of-sample economic values improve as the mortgage and term spreads are considered.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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