Abstract

This study examines the linkage between direct real estate markets in the United States, United Kingdom, Australia, Hong Kong, and Singapore from both the long-term and short-run perspectives over the period 1988–2008. The evidence indicates no co-integrating relationship exists in over 80% of the direct real estate market systems. The absence of a long-run stable relationship implies the presence of potential gains from international diversification in direct property investing, as many markets /sectors move separately with no shared common stochastic trend. Moreover, the conditional return relationships between the five major real estate markets are time-varying especially when the return series are inflation-adjusted. Finally, although the short-term co-movements between many real estate markets are still very low, stronger return relationships among the five major real estate markets are present, implying that portfolio managers should expect some reduced diversification benefits in the long run.