Multiscale Analysis of International Linkages of REIT Returns and Volatilities

This paper extends the REIT literature on international market linkages by introducing a time scale dimension. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to seven major global REIT markets, and investigate their linkages among returns and volatilities at different time scales. Our findings suggest strong scale-dependency of the market linkages. Specifically, the linkage among returns generally increases with time scale, implying that portfolio diversification is most efficient at short time horizons. Moreover, the return linkage is found to be time varying and its dynamics varies across scales. In addition, results on the volatility linkage, which manifests itself through volatility comovements and spillover, show that volatility comovements generally strengthen as scale increases and volatility spillover varies across scales in terms of strength and direction. Our findings cash doubt on the use of the scale-free correlation coefficient as a universal measure of market linkage. Our findings can be utilized by time-scale-conscious investors to improve portfolio selection and risk management