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The Relationship Between REITs and Financial Markets: Evidence from Korean CR-REITs

  • Korea Real Estate Review
  • 2009, 19(2), pp.313-338
  • Publisher : korea real estate research institute
  • Research Area : Social Science > Law > Law of Special Parts > Law of Real Estate

Kim， Bum-Suk 1

1극동대학교

Accredited

ABSTRACT

This paper examines the relationship between Korean REITs and stock/bond markets. CR-REITs differ from ordinary trust structurein terms of limited operating period and its portfolio of assets. The CR-REITs should invest only in the specified real estates. The life span of CR-REITs is limited.This study tests whether CR-REITs – KOCREF I, REALTY, MERITZ, KOCREF III, and MACQUARIE - have similar characteristics to common stocks/bond or not, using the co-integration analysis and error correction model.The empirical tests show that, for the bivariate cointegration, there is no cointegrating vector between REITs and stock/bond marketsexcept for MERITZ-construction sector index. However, for the multivariate cointegration, at least more than one cointegrating vectors for each CR-REITs are found. The error correction models show that, for MERITZ, and KOCREF III, there is a long-term equilibrium relationship. For REALTY and MACQUARIE, however, there is not a long-term relationship. And in two of CR-REITs, a short-term lead/lag relationship with bond markets is found. The relationship between REITs and financial markets may depend on characteristics of REITs. In addition, the evidence found in this paper suggests that REITs provide a useful way to diversify portfolio.

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This paper was written with support from the National Research Foundation of Korea.
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