Regional and global contagion in real estate investment trusts: the case of the financial crisis of 2007-2009

George Milunovich, Stefan Trück*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

21 Citations (Scopus)


Purpose: The purpose of this paper is to investigate contagion between real estate investment trusts (REITs) within and across three geographical regions: North America, Europe and Asia-Pacific. The paper also examines excess comovement between the considered national REIT markets on the one hand, and broad equity indices on the other. In particular, the authors are interested in contagion between the considered markets during the 2007-2009 GFC period in comparison to the entire 2004-2011 sample period. Design/methodology/approach: Using an international factor pricing framework similar to Bekaert, Harvey and Ng, the paper defines contagion as excess comovement between two financial markets, after removing the effects of the underlying economic fundamentals, i.e. risk factors, and time-changing volatility. Controlling for economic factors is important for distinguishing between pure contagion and information spillovers, which may transmit through existing economic channels. The authors then analyse excess correlations between the derived standardized residuals, for REITS and equity markets in order to investigate excess comovement between the indices during the whole sample and GFC period. Findings: The paper finds no evidence of excess comovement between the considered REIT and equity indices during non-crisis sample intervals. However, the paper finds contagion between several national REITs and regional or global equity markets during the GFC period. The paper reports statistically significant excess correlations between national REITs and regional and world real estate markets during the entire sample period, while there is only limited evidence to suggest that the correlation amongst REIT markets has increased during the GFC period. The paper concludes that a similar degree of dependence persisted among national REIT markets over the crisis and non-crisis sample periods for most markets. Originality/value: Despite the ongoing debate on contagion in financial markets, there is only a small body of literature investigating contagion specifically for property or real estate markets. This is even more surprising, since the GFC originated from a subprime mortgage crisis and was, therefore, heavily related to real estate. The paper extends the literature by testing for contagion between REITs considering eleven national markets across three geographical regions. In contrast, the existing literature is typically constrained to a significantly smaller number of markets. The paper also explicitly takes into account the impact of the recent GFC, and tests for contagion over this period.

Original languageEnglish
Pages (from-to)53-77
Number of pages25
JournalJournal of Property Investment and Finance
Issue number1
Publication statusPublished - 2013


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