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Extreme returns and value at risk in international securitized real estate markets

Kim Hiang Liow (Department of Real Estate, National University of Singapore, Singapore)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 8 August 2008




The purpose of this paper is to investigate and compare the extreme behavior of securitized real estate and stock market returns as well as their value‐at‐risk (VaR) dynamics in international investing. Extreme value theory using the block maxima method is applied to ten securitized real estate and equity market indices representing Asian, European and North American markets.


The paper models the maxima and minima of all return series within the extreme value theory (EVT) framework and derive the VaR estimates. It then compares the VaR estimates derived from the EVT and the normal distribution and investigates the impact of clustered returns on the VaR estimates. Finally, both the conventional standard deviation measure and VaR method are conducted to evaluate and compare the impact of the Asian financial turmoil on the real estate and stock market risk profiles.


Evidence shows that Asian real estate and equity maxima and minima return series are characterized by a fat‐tailed Fréchet distribution. The frequency and severity of extreme Asian real estate returns are greater than their European and North American counterparts. Securitized real estate markets are riskier than the broader stock markets before and during the Asian financial turmoil. In contrast, many stock markets become riskier after the financial crisis with their VaRs higher than the equivalent VaR estimates for the real estate series.

Research limitations/implications

Knowledge about real estate market returns exhibit extreme behavior can help investors and fund managers understand the distribution of real estate market returns better and obtain potentially more accurate real estate return forecasts.

Practical implications

International real estate portfolio risk management should include both extreme risks and standard deviations. Accordingly, global investors should be even more cautious in formulating their diversification strategies since gains from diversification can be reduced significantly by the severity of extreme return levels.


The paper characterizes the distribution of extreme returns for a broad spectrum of international securitized real estate markets from three continents. The extreme value investigation is also conducted for broader stock markets corresponding to the individual real estate markets. The July 1997 turmoil that occurred in Asian financial markets provides interesting exploratory opportunities within which this paper estimates and compares the extreme market risk with the conventional standard deviation measure.



Hiang Liow, K. (2008), "Extreme returns and value at risk in international securitized real estate markets", Journal of Property Investment & Finance, Vol. 26 No. 5, pp. 418-446.



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

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