Article:

Long-term Cointegrative and Short-term Causal Relations among U.S. Real Estate Sectors

Author: Paul Gallimore, J. Andrew Hansz, Wikrom Prombutr, Ying Zhang

Start Page: 359
End Page: 394
Volume: 17
Issue Number: 3
Year: 2014
Publication: International Real Estate Review

Abstract:

We investigate long-term cointegrative and short-term causal relations among seven U.S. sectoral REITs. First, cointegration tests identify one long-term cointegrative relation among five of the sectors, which suggests that two of the sectors are outside the cointegrative space. Second, short-term Granger causality tests identify three leading and two following cointegrated sectors. Third, a proposed vector autoregressive model indicates that a stronger cointegrating effect is induced by declining real estate markets and a multivariate sensitivity regression model shows that unexpected inflation significantly and negatively influences the cointegrative disequilibrium. Lastly, our cointegration-based portfolio performance analyses show that the inferior performance of the all-sector market portfolio stems from containing the redundant cointegrated sectors which shatter portfolio diversification.

Keywords
Cointegration; Domestic Real Estate Sector; Error Correction Model; Portfolio Construction and Diversification; Vector Autoregressive Model

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