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Macroeconomic risk influences on the property stock market

Article Information:

Title:

 Macroeconomic risk influences on the property stock market

Author(s):

Kim Hiang Liow, Muhammad Faishal Ibrahim, Qiong Huang

Journal:

Journal of Property Investment & Finance

Year:

2006 

Volume:

24 

Issue:

4 

Page:

295 - 323


DOI:

10.1108/14635780610674507

Publisher:

Emerald Group Publishing Limited

Document Access:

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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:

Financial risk, Macroeconomics, Property, Stock markets

Article Type:

Research paper

References:

54 references

Article URL:

www.emeraldinsight.com/10.1108/14635780610674507

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