TY - JOUR T1 - Correlation and Volatility Dynamics in REIT Returns: <em>Performance and Portfolio Considerations</em> JF - The Journal of Portfolio Management SP - 113 LP - 125 DO - 10.3905/JPM.2010.36.2.113 VL - 36 IS - 2 AU - Peng Fei AU - Letian Ding AU - Yongheng Deng Y1 - 2010/01/31 UR - https://pm-research.com/content/36/2/113.abstract N2 - In this article, the authors examine the dynamics of the correlation and volatility of REITs, stocks, and direct real estate returns using monthly data from January 1987 to May 2008. In order to explore asymmetries in conditional correlation, the authors use a multivariate asymmetric dynamic diagonal conditional correlation (AD-DCC) GARCH specification. They document that the time-varying conditional correlations can be explained by macroeconomic variables, such as term and credit spreads, inflation, and the unemployment rate, and they find a strong relationship between correlations and REIT returns and that the patterns are distinguishable for different types of REITs. Interestingly, when the correlation between REITs and the S&amp;P 500 is at its lowest, the future performance of REITs is at its highest. For equity REITs, a robust relationship exists between correlations and future returns; that is, the higher (lower) correlation between equity REITs and direct real estate, the higher (lower) the future returns of equity REITs. The authors’ results have economic implications regarding the time-dependent diversification benefits of REITs in a mixed-asset portfolio and the unique risk and return characteristics of REITs.TOPICS: Volatility measures, VAR and use of alternative risk measures of trading risk, analysis of individual factors/risk premia ER -