JOURNAL OF REAL ESTATE RESEARCH Frequency Space Correlation between REITs and Capital Market Indices

Abstract. Several studies have examined real estate investment trust (REIT) co-movement with stocks or bonds using traditional time domain based methods, such as linear regression or correlation. Results of these studies have produced inconsistent statistical model parameters. The erratic behavior of the models may have resulted from the different time periods in the studies, the REITs included in a study or the market indices. Another factor contributing to the variation of the models comes from the compression of cyclical information over a study’s time period by time domain based techniques. Cross-spectral analysis provides a frequency space method of examining the coherency (i.e., frequency space correlation) between two time series across all frequencies. This article contains an examination of the coherency between REITs and stock market indices and REITs and U.S. Treasury debt indices for the period 1989–95. Results of the coherency spectra show significant co-movement between REITs and stock market indices, while debt instruments show very few frequencies with significant coherency. Furthermore, phase spectra provide evidence of contemporaneous movement between REITs and stock indices at all frequencies