International Real Estate Securities: A Test of Capital Markets Integration

Executive Summary. The investigation into the cross-sectional and time-series differences in correlation coefficients between property stocks and broader equity indices in fourteen countries yields several interesting findings. First, the study found that correlation coefficients in many countries have not been stable over time, and in several of these countries there is a discernable trend toward integration or segmentation of the property sector with the broader equity market. Second, the study explored three hypotheses (Relative Weight, Global and Investment Structure) that would account for these differences and trends. While further quantitative work will be needed, the preliminary findings support two of the three original hypotheses. It appears that both a Global and Investment Structure hypothesis explain a great deal of the variation that is observed in market integration / segmentation across countries. More rigorous statistical tests will be needed to confirm these preliminary observations.