Real-Estate risk effects on financial institutions' stock return distribution: A bivariate GARCH analysis

  • Elyasiani E
  • Mansur I
  • Wetmore J
  • 23


    Mendeley users who have this article in their library.
  • 5


    Citations of this article.


This paper examines two relationships using the bivariate generalized autoregressive conditionally heteroskedastic (GARCH) methodology. First, the relationship between equity returns of commercial banks, savings and loans (S&Ls) and life insurance companies (LICs), and those of the real-estate investment trusts (REITs), a proxy for the real-estate sector performance. Second, the relationship between conditional volatilities of the stock returns of these financial intermediaries (FIs) and that of REITs. The former relationship allows the spillover of returns between the real-estate and the financial intermediation sector to be analyzed. The latter allows an investigation of the prevalence, direction and strength of inter-sectoral risk transmission to be carried out. Several interesting results are obtained. First, the equity returns of the FIs considered follow a GARCH process and should be modeled accordingly. Second, as found in the literature, returns on REITs should be modeled using the Fama-French multiple factor model. However, this model has to be extended to incorporate a GARCH error structure. Third, all FI returns considered are highly sensitive to REIT returns and the effects are both statistically and economically significant. This is an indication that shocks to REITs returns spillover to the former markets. Fourth, spillover of increased volatility in the real-estate sector to S&Ls and LICs is significant but not to commercial banks.

Author-supplied keywords

  • Bivariate GARCH
  • Financial institutions
  • REITs
  • Real-estate

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document


Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free