Study On The REITs Market Risk And Contagion Effects

Being the rapid economic development in China, it has been increased from the current development of important export-led economic growth engine converted to domestic consumption and investment-based twin-engine. What is more, its development of key industries increased from manufacturing, gradually transformed into the financial and capital market center. To achieve this goal, it continue to introduce new financial instruments, especially derivatives, such as futures, options, commodities denominated in RMB related, REITs are also one of the planning of the products. Therefore, it is very important in practical on the study of US and Japan’s REITs development experience and explores its portfolio risk.It has been a very long time in view of the development of global REITs. The experience of United States and Japan REITs development can make a reference. However, at my best knowledge about the topic, most of the literatures only discuss a single market, such as the U.S., Europe or Japan. REITs, and a little of literature discuss the regional REITs dynamically relationship.Regarding to the methodology, most of using Factor analysis, Vector Autoregression model (VAR), bivariate GARCH volatility model to discussed the related issues. It is difficult to understand two variables between the static and dynamic relationship. Just a few of the research literature applied the Copula correlation (dependence) in comovement or spillover effect, especially no any REITs article be used.Therefore, this dissertation discussed in addition to the U.S., Japan and Taiwan REITs development history, advantages and features outside. Also compares the subprime mortgage crisis before and during the US and Japan correlation of the two REITs. In empirical methodology, in addition to the traditional use of correlation analysis, but also through the static and dynamic Copula correlation analysis for comparison. In addition, this paper also uses historical simulation method, variance-covariance method, extreme value models and dynamic Copula model for calculating the Value at Risk(VaR) and performance of US and Japan REITs portfolio in the subprime mortgage crisis. The empirical results show that,1.Normal Copula model is the best, but the degree of correlation is very low which indicated that Japan’s REITs returns are not subject to the impact of U.S. REITs returns. But during the subprime mortgage crisis, U.S. and Japanese REITs returns have a higher degree of correlation, but Clayton Copula is the best. It implied that the United States will affect the Japanese REITs.2. Using static dynamic Normal Copula and Clayton Copula, found that the subprime crisis has significant contagion effects. Implications of changes in U.S. REITs returns will affect the Japanese REITs returns.3. The positive and negative shocks are the probability that there are significant differences.In other words, when the subprime crisis occurred, the U.S. REITs impact on the Japanese influence significantly larger.4. Comparing different Vary model can be found that in the sub-prime turmoil, after the historical simulation method and the variance-covariance method than the assessed Value at Risk model extreme values low, but the risk of Copula assessed value was higher than the average extreme value model. While back-testing results can be found through most of the Vary model at95%,97.5%significance level to reject the null hypothesis. The performance of Copula VaR model is still the best. In addition to the results of this study can take as a reference to China’s future development of REITs, it can also be used as global REITs portfolio and risk management reference.