Mean and Volatility Spillovers between REIT and Stocks Returns A STVAR-BTGARCH-M Model

In this study we have examined volatility spillovers as well as volatility-in-mean effect between REIT returns and stock returns for both the USA and the UK by applying a bivariate GARCH-M model where the conditional mean is specified by a smooth transition VAR model. Dynamic conditional correlation approach has been applied with the GJR-GARCH specification so that the intrinsic nature of asymmetric volatility in case of positive and negative shocks can be duly captured. The major findings that we have empirically found is that the mean spillover effect from stock returns to REIT returns is significant for both the countries while the same from REIT returns to stock returns is significant only in the UK. It is also evident from the results that own risk-return relationship of REIT market is positive and significant only in the bear market situation in both the countries while for the stock market own risk-return relationship is insignificant for both the bull and bear markets in the USA but it is negative in the bear market condition and positive in the bull market situation for the UK. We have also found that asymmetric nature of conditional variance and dynamic behavior in the conditional correlation holds as well. Finally, several tests of hypotheses regarding equality of various kinds of spillover effects in the bull and bear market situations show that these spillover effects are not the same in the two market conditions in most of the aspects considered in this study.