Working Paper: NBER ID: w7566
Authors: Bradford Case; William N. Goetzmann; K. Geert Rouwenhorst
Abstract: The correlations among international real estate markets are surprisingly high, given the degree to which they are segmented. While industrial, office and retail properties exist all around the world, they are not economic substitutes because of locational specificity. In addition, the broad securitization of real estate property companies has, until recently, lagged that of other types of companies. Never-the-less, international property returns move together in dramatic fashion. In this paper, we use eleven years of global property returns to explore the factors influencing this co-movement. We attribute a substantial amount of the correlation across world property markets to the effects of changes in GNP, suggesting that real estate is a bet on fundamental economic variables which are correlated across countries. A decomposition shows that a local production factor is more important in some countries than in others.
Keywords: real estate; global markets; GNP; correlation
JEL Codes: R33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP changes (E20) | international property returns (F21) |
| removal of local and global GDP effects (F69) | correlations among global real estate markets (R33) |
| country-specific GDP (E20) | correlations among global real estate markets (R33) |
| global GDP (F62) | correlations among global real estate markets (R33) |
| economic factors (P42) | correlations across markets (C10) |