Futures trading, spot price volatility and market efficiency: evidence from European real estate securities futures

Lee, C. L., Stevenson, S. and Lee, M.-L. (2014) Futures trading, spot price volatility and market efficiency: evidence from European real estate securities futures. Journal of Real Estate Finance and Economics, 48 (2). pp. 299-322. ISSN 1573-045X doi: 10.1007/s11146-012-9399-3

Abstract/Summary

In 2007 futures contracts were introduced based upon the listed real estate market in Europe. Following their launch they have received increasing attention from property investors, however, few studies have considered the impact their introduction has had. This study considers two key elements. Firstly, a traditional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, the approach of Bessembinder & Seguin (1992) and the Gray’s (1996) Markov-switching-GARCH model are used to examine the impact of futures trading on the European real estate securities market. The results show that futures trading did not destabilize the underlying listed market. Importantly, the results also reveal that the introduction of a futures market has improved the speed and quality of information flowing to the spot market. Secondly, we assess the hedging effectiveness of the contracts using two alternative strategies (naïve and Ordinary Least Squares models). The empirical results also show that the contracts are effective hedging instruments, leading to a reduction in risk of 64 %.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/35450
Item Type	Article
Refereed	Yes
Divisions	Henley Business School > Real Estate and Planning
Publisher	Springer
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