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A Time‐Varying Risk Analysis of Equity and Real Estate Markets in the US and Japan
Author(s) -
Liu Crocker H.,
Mei Jianping J.P.
Publication year - 1999
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.00082
Subject(s) - economics , real estate , equity (law) , financial economics , mean reversion , real estate investment trust , monetary economics , finance , political science , law
The paper offers some new evidence which suggests that Japanese equity and real estate markets might not necessarily behave in a parallel manner to US capital markets. These results are obtained from an examination of the nature of expected and unexpected movements in the returns of Japanese assets and US assets using a present‐value model which allows for a time‐varying expected discount rate in conjunction with a VAR process. Based on data from 1972–92, it is found that one distinctive difference is that changes in the future expected return for Japanese real estate and stocks are less persistent over time than their US counterparts. It is also found that the impact of Japanese markets on the US market was relatively small. On the other hand, there is some evidence that the US equity market had some significant impact on the Japanese equity market. Returns on Japanese stocks also exhibit a weaker mean reversion process relative to returns on US stocks and US real estate.