Quantile dependence and asymmetric connectedness between global financial market stress and REIT returns: Evidence from the COVID-19 pandemic

Abstract

Using daily data for the financial stress index of the US and real estate investment trusts (REITs) returns from February 2, 2020, to January 20, 2022, we investigate the frequency-dependent and asymmetric connectedness between global financial market stress and REIT returns for the top 12 REIT regimes in America, Europe, and Asia. We use a novel asymmetric, noise-reducing-domain EEMD-based quantile connectedness and quantile-on-quantile regression technique and the quantile vector autoregression (QVAR) connectedness approach. The findings divulge that at the upper quantile financial market stress is a major risk transmitter, transmitting risk towards Germany, France, Netherlands, New Zealand, the UK, and Canada. The findings of the study explicate the pivotal role of the financial soundness on the housing market, which is one of the main drivers of the economy. Investors and market participants should observe the conditional state of market dynamics and its associated policies for risk management and diversification strategies in real estate investment.