Abstract
We employ a little-used dataset to study the Japan's Real Estate Investment Trusts (REITs) market. We make use of copula theory and test for dependence between equity and REIT returns using several popular copula families. The copula families in our specification were: Gaussian, Student-t, Clayton, Frank, and Gumbel. The p-values were computed using parametric bootstrap replications. We motivate the argument presented, and provide the goodness-of-fit test results based on the Rosenblatt transform. We find that the dependence between the innovations of JREIT Composite and JREIT Office returns can be modelled by a Student-t copula with 2.7 degrees of freedom and correlation parameter v = 0.93. All other models are rejected. To the best of our knowledge, this study represents the first time that copula theory has been applied to study REITs in Japan.
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