Price and Volatility Linkages between International REITs and Oil Markets

Abstract

This study analyzes price and volatility transmissions between nineteen real estate investment trusts (REITs) markets and the oil market. The REITs data represents a variety of countries at different stages of their development and the expanded analytical approach includes accounting for structural shifts as gradual processes – as opposed to strictly abrupt processes typically assumed in literature. Oil prices are found to primarily predict REITs prices in mature REITs markets, but the feedback from REITs to oil prices is weak. From the perspective of volatility, strong evidence of bidirectional transmission in majority of the markets is observed. This study further demonstrates the importance of accounting for gradual (smooth) structural shifts for price transmission analysis.