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Low-frequency volatility of real estate securities in relation to macroeconomic risk

Lee, C. L., Stevenson, S. and Lee, M.-L., (2015) Low-frequency volatility of real estate securities in relation to macroeconomic risk. Working Papers in Real Estate & Planning. 02/15. Working Paper. University of Reading, Reading. pp42.

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Real estate securities have a number of distinct characteristics that differentiate them from stocks generally. Key amongst them is that under-pinning the firms are both real as well as investment assets. The connections between the underlying macro-economy and listed real estate firms is therefore clearly demonstrated and of heightened importance. To consider the linkages with the underlying macro-economic fundamentals we extract the ‘low-frequency’ volatility component from aggregate volatility shocks in 11 international markets over the 1990-2014 period. This is achieved using Engle and Rangel’s (2008) Spline-Generalized Autoregressive Conditional Heteroskedasticity (Spline-GARCH) model. The estimated low-frequency volatility is then examined together with low-frequency macro data in a fixed-effect pooled regression framework. The analysis reveals that the low-frequency volatility of real estate securities has strong and positive association with most of the macroeconomic risk proxies examined. These include interest rates, inflation, GDP and foreign exchange rates.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:40504
Uncontrolled Keywords:Real estate securities, Spline-GARCH, volatility, macroeconomic risk and international
Publisher:University of Reading
Publisher Statement:The copyright of each paper remain with the author. If you wish to quote from or cite any paper please contact the appropriate author. In some cases a more recent version of the paper may have been published elsewhere.


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