Abstract
Globalization is certainly one of the most large-scale processes that has influenced every country and has already made a significant impact on the world’s economy. Globalization leads to an increase in the number of competitors in the market. Serious and constantly increasing competition in the global market causes an increase of productivity, lower prices and costs. The 2008 global financial crisis influenced today’s economy a lot. Moreover, many studies and research works are now devoted to this issue, its reasons and consequences. It is considered that from 2001 interest rates were cut significantly and that led to borrowing encouragement, which in its turn, led to the increase in consumption and investment spending. Such change in economy caused an increase in the real estate market and the number of homes sold increased, as well. What is more, the number of mortgages rose significantly as compared to the previous years.
There has always been a very strong interrelation between such two aspects as price changes and stock returns within international commercial real estate. This historical link is inevitable, while discussing the matter of globalization and its impact on institutional investments. The relationship between price changes and stock returns should be analyzed on the basis of several different countries, in order to make the trustworthy research.
A great number of scientific sources in the real estate finance sphere shows that there is a serious lack of one reliable and absolute measure of risk, volatility in other words; and this drawback influences the whole universal measuring system. There is a strong need to find a particular consensus on one universal and efficient method that can be applicable for all the countries.
Such a low indicator of volatility regarding commercial property should be considered as only one part of the tendency of the commercial property returns. Thus, the commercial property market seriously needs one essential measuring method of volatility.
Real Estate Market
With the development of the world economy and the financial industry, the real estate market is playing an increasingly pivotal role. The return and risks of the real estate market changes affect not only the dynamics in the financial markets, but also influences the running of the economy. In 2008, the financial crisis that began in the U.S. washed away the real estate market bubble. In order to withstand the crisis, to maintain the economy and financial stability, central banks through enormous efforts started to inject liquidity in the market for stimulation economic growth within a short time.
Commercial property has captured the attention of investors again, as its return in the real estate market was accompanied with great diversification and other specific features for portfolios. One more reason for such a strong concern with real estate is the unrivalled income return of the property that is of a particular interest for every insurance company nowadays.
Real estate can surely improve the situation in the whole market by providing it withdiversified portfolios. One of the crucial tasks nowadays is to achieve stable income flow gained from property; and this aim is of a great value particularly for those, who are worried about the level and stability of pension provisions. However, it is necessary to consider that commercial property is a very attractive option not only for private investors, but for a great number of individual ones, as well. The issue of property investment is certainly a very relevant question as it can have impact on the whole market. That is why, it is necessary to understand its background. The process of volatility that has affected equity market and its analysis shows that property is a good benefit, when the need of diversifying a portfolio is considered, and in case investors are mainly concerned about their retirement.
Project Aims
This study will seek to shed more light on the understanding of the main performance characteristics that define commercial real estate. This aim should be achieved as commercial real estate is currently of a great interest and importance both for the institutional and individual investors. Besides, real estate serves as an asset class, and thus its performance is closely related to the productivity of the diversified investment portfolios. It is impossible to acquire the assets in relation to the overall portfolio without such a stage as defining necessary performance characteristics.
One more reason, why so much attention has been focused on the performance of real estate sector is that it can influence benchmarking and manager performance. That is why, it is better to see all the risks and return features of commercial real estate, in order to predict, and consequently avoid its undesired negative impact on the whole market.
The research will seek to achieve the following set of aims:
- Apply Geltner’s method, in order to assess the reliability across countries.
- Try other methods and determine whether a better alternative can be found.
- Use different smoothing parameters and identify whether a consistent and convincing result can be found.
This study will also focus on the following research questions as the meaning and necessity of the smoothing debate (smoothing puzzle), difficulty in identifying smoothing parameter, and determining the right serial correlation.
Dissertation Structure
This paper will fix attention on the commonly used unsmoothed method and apply it to a cross-country data set base. The study contains seven main sections. The first section has provided the background information to the study and the study’s objectives. The second section serves as an overview of the work and its organization. The next section contains the overall literature review, and it will also be focused on the defying the smoothing model. The literature review helped define the unsmoothed and universal methods that are applied in different countries, in order to see whether one universal and fundamental method can be suitable for all the countries. What is more, the paper highlights the objectives and questions the research sought to answer. This is possible due to the analysis of the available research data provided in the literature review section.
The objectives are logically connected with the literature review and form the basis for the next section of the paper. All the aims of the study are achieved with the help of the critical review of the available literature on this topic and a cross-country analysis. The methodology section outlines how the data collected may help answer the questions derived from the objectives. This includes a review of the qualitative and quantitative data collection methods as well as ways of handling the data for getting desired results. The sixth section reports results of the exploratory data analysis based on figures and discussion. It also reports unsmoothed return under different unsmoothed parameter. The last section summaries the findings, draws conclusions from them and indicates some of the implications of research results. The paper concludes by justifying the research methods and literature review, and by stating an argument derived from the analysis of the data. Limitation of the study and suggestions for further research in this field are considered.