How integrated are real estate markets with the world market? Evidence from case-wise bootstrap analysis

Abstract

We investigate the extent by which real estate markets are integrated with the world market. We apply a case-wise bootstrap analysis — a method that is robust to non-normality and increased volatility that characterises financial markets, especially during periods of distress. We also take into account the effect of the global financial crisis. Our investigation is conducted in relation to five most important and highly internationalised real estate markets, namely, the US, UK, Japan, Australia and the United Arab Emirates (UAE). We find that the first four markets are integrated with the world market — with Japan, the US, and the UK being the most integrated, but the last one is not. Our results also show that the US real estate market crisis affected the five markets differently. It made the UAE, Australia and the US real estate markets more integrated internationally but resulted in the Japanese market becoming less globally integrated. In the case of the UK, the crisis did not affect at all its level of integration with the world market.