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Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns

Tracey West (School of Economics and Finance, Queensland University of Technology, Brisbane, Queensland 4001, Australia)
Andrew C Worthington (School of Accounting and Finance, University of Wollongong, Wollongong, New South Wales 2522, Australia)

Journal of Financial Management of Property and Construction

ISSN: 1366-4387

Article publication date: 1 August 2006

992

Abstract

This paper employs a Generalised Autoregressive Conditional Heteroske‐dasticity in Mean (GARCH‐M) model to consider the effect of macroeconomic factors on Australian property returns over the period 1985 to 2002. Three direct (office, retail and industrial property) and two indirect (listed property trust and property stock) returns are included in the analysis, along with market returns, short, medium and long‐term interest rates, expected and unexpected inflation, construction activity and industrial employment and production. In general, macroeconomic factors are found to be significant risk factors in Australian commercial property returns. However, the results also indicate that forecast accuracy in these models is higher for direct office, listed property trust and property stock returns and that the persistence of volatility shocks varies across the different markets, with volatility half lives of between five and seven months for direct retail and industrial property, two and three months for direct office property and less than two months with both forms of indirect property investment.

Keywords

Citation

West, T. and Worthington, A.C. (2006), "Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns", Journal of Financial Management of Property and Construction, Vol. 11 No. 2, pp. 105-116. https://doi.org/10.1108/13664380680001083

Publisher

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Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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