Increased Tail Dependence in Global Public Real Estate Markets

Abstract

This study examines the tail dependence of returns in international public real estate markets. By using daily returns of real estate securities in seven countries from 2000 to 2014, we analyze how the interdependence of international securitized real estate markets has changed since the Global Financial Crisis. We divide our sampling period into pre-, during, and post-crisis periods, and estimate both upper and lower tail dependence coefficients for each sub-period. Our empirical results confirm that most country pairs have changed from tail-independent to tail-dependent since 2007. Strong tail dependence persists throughout during crisis and post-crisis periods. The findings from the post-crisis sub-sample provide new evidences on increased tail dependence in global real estate market in recent years. We conclude that international real estate securities still offer diversification benefits nowadays but to a lesser extent than in the pre-crisis period. Investing in global real estate securities markets is beneficial for cross-region, mixed-asset portfolios.