Regional and Global Contagion in Real Estate Investment Trusts : The Case of the Financial Crisis of 2007-2009

Using a framework similar to Bekeart, Harvey and Ng (2005), we investigate contagion between real estate investment trusts (REITs) within and across three geographical regions: North America, Europe and Asia-Pacific. We also examine for contagion between twelve national REIT markets on the one hand, and broad equity indices on the other hand. In our analysis, we distinguish between the 2007-2009 global financial crisis (GFC) period and the rest of the sample, and further test for an increase in the frequency of contagion during the GFC. We find no evidence of contagion between the REITs and equities during non-crisis sample intervals, but find contagion between six of the twelve country REIT indices and local, regional and global equity markets over the GFC period. We also report statistically significant excess correlations between the national REITs and regional and world real estate markets during the entire 2004-2011 time period, measured in addition to what is explained by a factor pricing model. Lastly, there is no evidence to suggest that the frequency of the contagion amongst the REITs increased during the crisis, and we conclude that a similar degree of dependence persisted among the national markets over the crisis and non-crisis sample periods