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Macroeconomic risk influences on the property stock market

Kim Hiang Liow (Department of Real Estate, National University of Singapore, Singapore)
Muhammad Faishal Ibrahim (Department of Real Estate, National University of Singapore, Singapore)
Qiong Huang (Department of Real Estate, National University of Singapore, Singapore)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 1 July 2006

13552

Abstract

Purpose

The purpose of this paper is to provide an analysis of the relationship between expected risk premia on property stocks and some major macroeconomic risk factors as reflected in the general business and financial conditions

Design/methodology/approach

Employs a three‐step estimation strategy (principal component analysis, GARCH (1,1) and GMM) to model the macroeconomic risk variables (GDP growth, INDP growth, unexpected inflation, money supply, interest rate and exchange rate) and relate them to the first and second moments on property stock excess returns of four major markets, namely, Singapore, Hong Kong, Japan and the UK. Macroeconomic risk is measured by the conditional volatility of macroeconomic variables.

Findings

The expected risk premia and the conditional volatilities of the risk premia on property stocks are time‐varying and dynamically linked to the conditional volatilities of the macroeconomic risk factors. However there are some disparities in the significance, as well as direction of impact in the macroeconomic risk factors across the property stock markets. Consequently there are opportunities for risk diversification in international property stock markets.

Originality/value

Results help international investors and portfolio managers deepen their understanding of the risk‐return relationship, pricing of macroeconomic risk as well as diversification implications in major Asia‐Pacific and UK property stock markets. Additionally, policy makers may play a role in influencing the expected risk premia and volatility on property stock markets through the use of macroeconomic policy.

Keywords

Citation

Hiang Liow, K., Faishal Ibrahim, M. and Huang, Q. (2006), "Macroeconomic risk influences on the property stock market", Journal of Property Investment & Finance, Vol. 24 No. 4, pp. 295-323. https://doi.org/10.1108/14635780610674507

Publisher

:

Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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