Abstract
This paper uses a regime switching approach to determine whether prices in the stock, direct real estate and indirect real estate markets are driven by the presence of speculative bubbles. The results show significant evidence of the existence of periodically partially collapsing speculative bubbles in all three markets. We then develop and implement a multivariate bubble model to evaluate whether the stock and real estate bubbles spill over into REITs. We find the underlying stock market bubble to be a stronger influence on the securitized real estate market bubble than that of the property market. Furthermore, our findings suggest a transmission of speculative bubbles from the direct real estate to the stock market, although this link is not present for the returns themselves.
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