An analysis of the long-run impact of fixed income and equity market performance on Australian and UK securitised property markets

Abstract

Purpose – Given the mixed findings in the literature, this paper aims to re-examine the relationship that the securitised property market has with both the fixed income and general stock markets in the UK and Australia from July 1998 to June 2006. Design/methodology/approach – The base methodology is the cointegration procedure developed by Inoue in conjunction with the procedure developed by Johansen, Gonzalo and Granger that allows the extraction of permanent and transitory driving factors underlying cointegrated systems. In Australia both listed property trusts (LPTs) and real estate management and development companies (REMDs) are studied, while in the UK the analysis is restricted to REMDs due to the fact that real estate investment trusts were only introduced in 2007, hence providing insufficiently long series. Findings – The Inoue test reveals that ignoring structural breaks in any cointegrating system may lead to erroneous inferences. In both Australia and the UK securitised property is influenced by the general stock market in both the long- and short-term. In Australia the fixed income market does not have a permanent influence on LPTs, despite the fact that LPTs use more long-term debt than REMDs. Originality/value – A major contribution of this study clearly points to the relative weightings that portfolio managers may now consider to be appropriate vis-a´-vis their holdings of bonds, equities and securitised property (under its different structures as considered here) in their portfolios for both their tactical and strategic asset allocations.