Abstract
Purpose
The purpose of this paper is to empirically examine the issue of convergence in the monthly returns, rental growth and yields for ten market segments in the UK direct real estate market, using monthly data over the period from January 1987 to December 2014.
Design/methodology/approach
The methodology used to determine convergence is principal component analysis as it provides an assessment of the extent to which the variance of the market segments can be represented by a single common factor, explaining their long-run behaviour, and the degree of independence between the market segments.
Findings
The results suggest that there is strong evidence of convergence over the entire sample period in relation to monthly returns and yields but less evidence of convergence in rental growth, which confirms the findings in previous studies in international markets.
Practical implications
The evidence also suggests that convergence has increased over the sample period and that convergence is period specific and was particularly strong during and after the period of the Global Financial Crisis, which implies that the UK direct real estate market is largely integrated and as a consequence the extent of diversification potential in the market is still severely limited.
Social implications
The convergence in returns has crucial implications for investors as it leaves investors exposed to the same structural shocks and so magnifies the importance of volatility spillover effects, limits their ability to create well-diversified portfolios and make it more difficult for fund managers to outperform the market.
Originality/value
This is the first paper to examine the convergence in the UK direct real estate market.
Subject
General Economics, Econometrics and Finance,Finance,General Business, Management and Accounting,General Economics, Econometrics and Finance,Finance,General Business, Management and Accounting
Reference55 articles.
1. A suggested approach to country selection in international portfolio diversification;Journal of Portfolio Management,1996
2. International security selection under segmentation: theory and application;Journal of Portfolio Management,1997
3. Andrews, M. and Lee, S.L. (2008), “The integration of securitised real estate markets in Europe”, paper presented at the Asian Real Estate Society Meeting, Shanghai, July.
4. Ang, A. (2012), “The four benchmarks of sovereign wealth funds”, in Bolton, P., Samama, F. and Stiglitz, J. (Eds), Sovereign Wealth Funds and Long-Term Investing, Columbia University Press, New York.
5. Equity market integration in Latin America: a time-varying integration score analysis;International Review of Financial Analysis,2004
Cited by
2 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献