INTERNATIONAL VOLATILITY TRANSMISSION OF REIT RETURNS

This study examines whether volatility of REIT returns can transmit across national borders. Two competing hypotheses are proposed. The first is the Transportable Risk Hypothesis which suggests geographic risk can be transmitted overseas if the general equity and real estate securities markets are integrated internationally. The second is the Non-Transportable Risk Hypothesis which argues that geographic risk factors are country-specific and therefore not transmittable across national borders. Using GARCH and EGARCH econometric models, international spillovers of volatility of REIT returns are found among United States, United Kingdom, and Japan. The finding has major implications for formulating international portfolio strategies as it improves forecasting ability. The finding also implies that better international portfolio diversification can be achieved with real estate securities from countries that have a lower degree of integration between the real estate sector and the general stock market.