Inter-regional dependence of J-REIT stock prices: A heteroscedasticity-robust time series approach

This paper investigates the dynamic interdependence between the stock returns of geographi-cally non-overlapping Japanese real estate investment trusts (J-REITs), where the property type and a market return are controlled. We take a multivariate time series approach, allowing for conditional heteroscedasticity of unknown form. We find significant impacts of central J-REITs on local J-REITs in conditional mean, a potential signal of arbitrage opportunities. After the COVID-19 crisis, the central-to-local impacts have become stronger for all property types considered: office, residential, and hotel. This empirical result is consistent with the consensus that portfolio diversification is harder to achieve during a period of turmoil.

Automated summary

This paper investigates the dynamic interdependence between geographically non-overlapping Japanese real estate investment trusts (J-REITs) in terms of their stock returns, considering property type and market returns. The study finds significant impacts of central J-REITs on local J-REITs in conditional mean, indicating potential arbitrage opportunities. After the COVID-19 crisis, the central-to-local impacts have become stronger for all property types, suggesting that portfolio diversification is harder to achieve during turmoil.