Long-term Cointegrative and Short-term Causal Relations among U.S. Real Estate Sectors
Author
Start Page / End Page
Volume
Issue Number
Year
Publication
Paul Gallimore, J. Andrew Hansz, Wikrom Prombutr, Ying Zhang
359 / 394
17
3
2014
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