The Impact of Real Estate Market Transparency on Dynamics between Direct and Indirect Real Estate

This paper provides cross-country evidence of the linkage between real estate market transparency and the dynamics between direct and indirect real estate, which is seldom examined in the previous literature. First, by adopting a variance decomposition procedure, the proportion of indirect real estate volatility that is attributable to 'pure' direct real estate, stock and bond factors in 18 countries over 1998-2012 is assessed. Second, the correlation between real estate market transparency and dynamics between these two real estate markets is examined. This paper concludes that real estate market transparency is significantly associated with the linkage between direct and indirect real estate, especially on the transaction aspects. These results have significant implications for international investment fund managers to consider the possibility of real estate securities as substitution for global property investment whilst enjoying the liquidity benefits.