As the globalization of world financial markets continues unabated the issue of benefits arising from international diversification becomes increasingly important. Due to the fixed geographical nature of the underlying product, securitized property might be considered immune from the effects of globalization, and to this extent researchers have considered the issue of international property market interdependence using a variety of statistical procedures. In this paper the question of interdependence across securitized property markets is examined by combining the Inoue (1999) cointegration methodology with the structural time series procedure of Harvey (1989). In the event of commonality of movement across property markets, this approach permits the researcher to isolate and visualize common movement, an operation that may be helpful to a portfolio manager trying to understand cross market activity. The results indicate that there is some unifying force across international property markets and that this unifying force may stem from the United States. The results also suggest that, at least to some extent, shocks to securitized property markets produce a similar response to stock market shocks.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
D’Arcy, E., & Lee, S. (1998). A real estate portfolio strategy for Europe: A review of the options. Journal of Real Estate Portfolio Management, 4, 113–123.
Diebold, F. (1989). Structural time series analysis and modeling package: A review. Journal of Applied Econometrics, 4, 195–204.
Doornik, J. A., & Hansen, H. (1994). An omnibus test for univariate and multivariate normality. Oxford: Working Paper, Nuffield College.
Engle, R. J., & Issler, J. V. (1995). Estimating common sectoral cycles. Journal of Monetary Economics, 35, 83–113.
Engle, R. J., & Kozicki, S. (1993). Testing for common features. Journal of Business and Economic Statistics, 11, 369–395.
Flaig, G. (2002). Unobserved components models for quarterly german GDP. CESifo Working Paper No.681 (5).
Friedmand, A., & Suchoy, T. (2004). The Nairu in Israel: An unobserved components approach. Israel Economic Review, 2, 125–154.
Gerlach, R., Wilson, P. J., & Zurbruegg, R. (2006). Structural breaks and diversification: The impact of the 1997 Asian financial crisis on the integration of Asia-Pacific real estate markets. Journal of International Money and Finance, 25, 974–991 .
Goldstein, J. (1997). Is the endogenous business cycle dead? Southern Economic Journal, 62, 962–977.
Goldstein, J. (1999). The existence, endogeneity and syncronization of long waves: Structural time series model estimates. Review of Radical Political Economics, 31, 61–101.
Gregory, A. W., & Hansen, B. E. (1996). Residual based tests for co-integration in models with regime shifts. Journal of Econometrics, 70, 99–126.
Harvey, A. C. (1989). Forecasting, structural time series models and the Kalman filter. Cambridge: Cambridge University Press.
Harvey, A. (2001). Testing in unobserved components models. Journal of Forecasting, 20, 1–19.
Inoue, A. (1999). Tests of cointegrating rank with a trend-break. Journal of Econometrics, 90, 215–237.
Johanssen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12, 231–254.
Johanssen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59, 1551–1580.
Kalman, R. E. (1960). A new approach to linear filtering and prediction problems. Journal of Basic Engineering, 85, 35–45.
Koopman, S. J., Harvey, A. C., Doornik, J. A., & Shephard, N. (2000). STAMP: Structural time series analyser, modeller and predictor. London: Timberlake.
Liu, C. H., & Mei, J. (1998). The predictability of international real estate markets, exchange rate risks and diversification consequences. Real Estate Economics, 26, 3–39.
Moosa, I. A. (2000). The cyclical behavior of prices in the UK: Some structural times series evidence. Empirical Economics, 25, 261–278.
Moosa, I. A. (2002). Price discovery and risk transfer in the crude oil futures market: Some structural time series evidence. Economic Notes by Banca Monte dei Paschi di Siena SpA, 31, 155–165.
Mull, S. R., & Soenen, L. A. (1997). U.S. REITs as an asset class in international investment portfolios. Financial Analyst Journal, 53, 55–61 (Mar/Apr).
Muscatelli, V. A., & Tirelli, P. (2001) Unemployment and growth: Some empirical evidence from structural time series models. Applied Economics, 33, 1083–1088.
Niemira, M. P., & Klein, P. A. (1994). Forecasting financial and economic cycles. New York: Wiley.
Stevenson, S. (2000). International real estate diversification: Empirical tests using hedged indices. Journal of Real Estate Research, 19, 105–131.
Takagi, S., & Esaka, T. (2001). Risk premiums and exchange rate expectations: A reassessment of the so-called dollar peg policies of crisis East Asian countries, 1994–97. Economic and Social Research Institute Discussion Paper Series no.3 (Tokyo).
Vahid, F., & Engle, R. F. (1993). Common trends and common cycles. Journal of Applied Econometrics, 8, 341–360.
Wilson, P. J., & Zurbruegg, R. (2003a). International diversification of real estate assets—is it worth it? Evidence from the literature. Journal of Real Estate Literature, 11, 259–278.
Wilson, P. J., & Zurbruegg, R. (2003b). Can large economies drive international real estate markets. Pacific Rim Property Research Journal, 9, 379–397.
Worzala, E., & Sirmans, C. F. (2003). Investing in international real estate stocks: A review of the literature. Urban Studies, 40, 1115–1149.
About this article
Cite this article
Wilson, P.J., Stevenson, S. & Zurbruegg, R. Foreign Property Shocks and the Impact on Domestic Securitized Real Estate Markets: An Unobserved Components Approach. J Real Estate Finan Econ 34, 407–424 (2007). https://doi.org/10.1007/s11146-007-9013-2
- Structural time series models
- Unobserved components
- Property market shocks