Global Financial Integration and Real Estate Security Returns

Abstract

Have globalization and increasing economic and financial integration affected the rates of return of publicly traded real estate companies around the world? Using a set of multi-factor models for annual data for 946 firms from 16 countries over the sample period, 1995-2002, we estimate the impact of a country's economic openness on returns of publicly traded real estate firms, controlling for the effects of global capital markets, domestic macro-economic, and firm-specific variables. We find that a country's real estate security excess (risk-adjusted) returns are negatively related to its openness. The results are robust across different multi-factor model specifications, and suggest that real property market efficiency may have been enhanced for non-tradable goods such as real estate in globalizing economies.

Keywords: globalization, economic openness, international financial market, real estate returns, international financial integration

JEL Classification: F36, F21, G15