Dynamic linkages between systemic risk and real-estate investment trusts in major emerging markets

Abstract

Orientation: Hedging against price risk is central to asset management, especially during instability. The rise of real-estate investment trusts (REITs) has increased the use of property-related portfolios.
Research purpose: This study tests whether systemic risk spillovers occur in REIT markets across major emerging countries and whether these linkages strengthen under stress.
Motivation for the study: Although REITs matter in emerging-market portfolios, limited evidence shows how domestic systemic risk affects REIT volatility in normal and extreme conditions. This limits guidance on when REITs diversify portfolios and when hedging effectiveness weakens.
Research approach/design and method: The study uses three econometric models: DCC-GARCH to capture volatility co-movements, Diebold–Yilmaz FEVD to measure volatility transmission and an Asymmetric GARCH-Copula to assess tail dependence during extreme episodes.
Main findings: In normal periods, volatility transmission from systemic risk proxies to REIT volatility is low, with FEVD shares ranging from 0.01% to 2.48% for China and Brazil. The strongest channels are South Africa’s yield share (10.16%) and India’s volatility-index share (12.51%). Under stress, dependence rises markedly: tail dependence reaches 0.580–0.619 for South Africa and 0.421 for India, showing that diversification benefits weaken when systemic risk is elevated.
Practical/managerial implications: REIT hedging performance is market- and regime-dependent. Asset managers should apply conditional hedging and stress testing, with greater vigilance in South Africa and India.
Contribution/value-add: The study shows that normal-period spillover estimates can understate crisis-period dependence and provides a multi-model benchmark for monitoring REIT hedging effectiveness under systemic stress.