Research On The Effect Of EPU On The Volatility Of HK REITs And Correlation Between HK REITs And HK Industry-level Stock Returns

Now the global political and economic uncertainty index(EPU)has set the higgest record.The increasing development of the financial system and the increasingly diversified investment mark of the Chinese market are bound to face greater political and economic uncertainty and the risks brought by a more complex financial risk network.With the rapid development of China's capital market and the arrival of the real estate quantified market,the demand for diversification of asset allocation and the objective demand for diversification of financing channels in real estate enterprises,the booming development of real estate financial products REITs(real estate trust fund)is imperative.Because REITs has the property of both the real estate market and the financial market and has a huge volume in the mature financial market,the traditional theoretical research holds that the systemic macro factors have a very significant impact on the volatility of the REITs market,while EPU also includes two systemic factors of macro economy and policy.And the correlation between REITs and the traditional stock market has also attracted the attention of many scholars,but there is no unified theory.At the same time,in recent years,many scholars believe that the factors that factors which affect the volatility of financial markets have both short-term and systematic long-term macro factors.Many studies have studied the volatility and correlation of the microfinancial market by component decomposition.In this paper,we firstly combine the frequency mixing model MIDAS and the political and economic uncertainty index EPU to construct the GARCH-MIDAS-X model and the DCC-MIDAS-X model.Using REITs and stock high frequency data and macro low frequency data(GEPU,CEPU,HKEPU)to study the influence of three kinds of EPU on the volatility of HSI REITs and the influence on the correlation between the HSI REITs and the industry stock index.By different loss functions and DM tests,the constructed GARCH-MIDAS-X and DCC-MIDAS-X are compared with the existing classical basic model DCC-GARCH to explore whether the model which has the long-term component constructed by EPU is more accurate in sample prediction and which EPU is the most effective.The empirical results show that GARCH-MIDAS-X and DCC-GARCH-X constructed by EPU can make the in-sample forecasts more accurate.And for the Hongkong market studied in this paper,the predictive ability of the GARCH-MIDAS-CEPU and DCC-MIDAS-CEPU constructed by CEPU is better than the model constructed by GEPU and HKEPU.Further studies have found that EPU has a positive impact on the volatility of REITs.Compared with other industry indexes,HSI REITs has lower volatility.At the same time,EPU also has a positive impact on the correlation between REITs and 11 HSI industries.In other words,EPU Index is high(during the financial crisis),the correlation between REITs and the stock market is strong,the EPU Index is low(during vigorous development or economic recovery period),and correlation between REITs and the stock market sector is weakened.The summary of the research:EPU is an important systematic macro indicator of REITs.The GARCH-MIDAS-X and DCC-MIDAS-X models constructed by EPU havemore accurate in-sample forecasts.For HSI REITs and HSI market,the model GARCH-MIDAS-CEPU and DCC-MIDAS-CEPU constructed by CEPU are better than models constructed by GEPU and HKEPU.And research shows EPU has a positive effect on the volatility of HSI REITs and the correlation between HIS REITs and HIS industy index.