Tail Dependence in International Real Estate Securities Markets

Posted: 29 Jun 2012

See all articles by Jian Zhou

Jian Zhou

University of Guelph

Yanmin Gao

Bob Gaglardi School of Business and Economics, Thompson Rivers University

Date Written: June 28, 2012

Abstract

"Tail dependence" characterizes the cross market linkages during stressful times. Analylzing tail dependence is of primary interest to portfolio managers who systematically monitor the co-movements of assets markets. However, the relevant literature on real estate securities markets is very thin. Our study extends the literature by using the flexible symmetrized Joe-Clayton (SJC) copula to estimate the tail dependences for six major global markets (U.S., U.K., Japan, Australia, Hong Kong, and Singapore). In implementing the SJC copula, we model the marginal distributions of returns through a semi-parametric method which has never been applied to real estate returns. Our major findings suggest that international markets display different strength and dynamics of tail dependence. We extensively discuss the implications of our findings for financial practices such as portfolio tail diversificatiions, portfolio selections, portfolio risk management and hedging strategies. Our study also demonstrates that the widely used linear correlation is an inadequate measure of market linkages, especially during periods of crisis.

Keywords: Tail dependence, Symmetrized Joe-Clayon (SJC) copula, Portfolio risk management, Real estate securities markets

Suggested Citation

Zhou, Jian and Gao, Yanmin, Tail Dependence in International Real Estate Securities Markets (June 28, 2012). Journal of Real Estate Finance and Economics, Vol. 45, No. 1, 2012, Available at SSRN: https://ssrn.com/abstract=2095240

Jian Zhou (Contact Author)

University of Guelph ( email )

Guelph, Ontario
Canada

Yanmin Gao

Bob Gaglardi School of Business and Economics, Thompson Rivers University ( email )

805 TRU Way
Kamloops, British Columbia V2C 0C8
Canada

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