CO-MOVEMENTS OF REIT INDICES WITH STRUCTURAL CHANGES BEFORE AND DURING THE SUBPRIME MORTGAGE CRISIS: EVIDENCE FROM EURO-MED MARKETS

Pinar Evrim Mandaci,Efe Çaglar Cagli,Bora Aktan

doi:10.3846/1648715x.2013.849302

Pinar Evrim Mandaci, Efe Çaglar Cagli + Show 1 more

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https://doi.org/10.3846/1648715x.2013.849302

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Abstract

This paper examines the long-run relationships between the REIT indices of the UK, Turkey and Israel in the Euro-Med zone with that of MSCI US REIT Index by using weekly data over the period 2003Q3 through 2009Q3, which includes the latest US subprime mortgage crisis and its effects on global stock markets. Although our EG test results do not indicate a long-run relationship, after taking account of the structural changes by applying the GH test, we find a long-run interaction between the REIT indices of UK and Israel with that of the US. However, our results indicate the lack of co-movement between REIT index of Turkey with the US. In addition, our dynamic OLS test results indicate a perfect relationship between the UK and the US indices. Our findings show that international investors who make long-term investments can only gain from diversifying into the real estate market of Turkey among the involved markets in the Euro-Med zone.

Highlights

In the wake of a long boom period in the last decade for both commercial and residential real estate markets in developed countries, we have witnessed the worst financial crises in history that began in the US and spread to Europe, Asia and the rest of the world since the Great Depression (Masood et al 2010; Aktan, Icoz 2009)
We use Zivot and Andrews (1992) unit root test, which allow for one structural break
After we find a significant long-run co-integration between the REIT indices of UK and US and a suspicious long-run relationship between Israel and US, we employ the Dynamic ordinary least squares (OLS) model

Summary

Introduction

In the wake of a long boom period in the last decade for both commercial and residential real estate markets in developed countries, we have witnessed the worst financial crises in history that began in the US and spread to Europe, Asia and the rest of the world since the Great Depression (Masood et al 2010; Aktan, Icoz 2009) While this bull market nowadays appears to have ended, many researchers and many practitioners believe that the addition of real estate to the financial asset investments provide significant gains in portfolio performance (Aktan, Ozturk 2009). After the 1980s with the deregulation and liberalization of the developing countries, finance researchers have begun to examine the relationship between the developed and emerging markets Most of these studies argue that portfolios including emerging markets provide more diversification opportunities for investors. We examine the relationship among some of Euro-Med countries Turkey, Israel, and the UK with the US over the period 2003Q3 through 2009Q3 which includes the latest US sub-prime mortgage crisis and its effects on global stock markets

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