The Journal of Real Estate Finance and Economics

, Volume 21, Issue 3, pp 279–296

Dynamics of Private and Public Real Estate Markets

Authors

  • Sorin A. Tuluca
    • Department of Finance, Samuel J. Silberman College of BusinessFairleigh Dickinson University
  • F. C. Neil Myer
    • Department of Finance, James J. Nance College of BusinessCleveland State University
  • James R. Webb
    • Department of Finance, James J. Nance College of BusinessCleveland State University
Article

DOI: 10.1023/A:1012055920332

Cite this article as:
Tuluca, S.A., Myer, F.C.N. & Webb, J.R. The Journal of Real Estate Finance and Economics (2000) 21: 279. doi:10.1023/A:1012055920332

Abstract

Using five assets (T-bills, bonds, stocks, and both public and private real estate), this study investigates how cointegration of capital markets affects the dynamics of public and private real estate markets. The results show that the price indices of the five assets are nonstationary and cointegrated. Some implications for the long-term equilibrium relationship for portfolio diversification, price discovery and prediction are discussed. In a Granger causality framework, error-correction augmented VAR models (VECM) and unrestricted VAR models are compared with respect to the conclusion regarding the interaction between public and private real estate returns. VECM is also shown to improve the prediction of private real estate returns relative to an unrestricted VAR model. These results raise questions about previous research studies regarding the dynamics between public and private real estate returns. It is shown that the long-term equilibrium relationship establishes a feedback between the two real estate markets, but the private market seems to informationally lead the public one. Possible explanations are also explored.

real estate marketscointegrationcausalitypredictability
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© Kluwer Academic Publishers 2000