Relationship and lead-lag effect between Asian Real Estate Investment Trusts (REITs) performance and Malaysian REIT market: Cointegration modelling

Against a plethora of justifications on the importance of work on the relationship between investment instruments in different markets context, there is still gap of knowledge on the relationship between a regional Real Estate Investment Trusts (REITs) market and a particular REIT of a country. This study is pursued with the objective of revealing the relationship between two markets, namely the Malaysian REIT and the Asian REITs market. This was investigated using monthly data from March 2005 until September 2009. Japan and Singapore are chosen to represent the Asian REITs because the two dominate the Asian REIT market in terms of market capitalization. The study employs Engle-Granger Cointegration test to examine the variables' long-run relationship, while vector autoregression (VAR) is deployed to explore the variables' dynamic interactions. The empirical findings of the study show an absence of long-run relationship between Malaysian REIT market and the Asian REITs market. With regard to their dynamic interactions, the two markets are found to be positively correlated and short-term relationship can be established between them. The Malaysian REIT is found to be lagging against the Asian REITs for up to two months.