11.00- 11.30 AM CET
We are pleased to host three webinars for the EPRA Research Webinar Series dedicated to research papers under EPRA Academic Research Programme 2023.
The key findings will be presented by the authors of the papers and the implications for listed real estate will be discussed.
Research Paper 2: ''Measuring Connectedness and Systemic Risk in the European LRE Sector''
Written by: Alexandros Skouralis and Nicole Lux (Bayes Business School)
''Since the early 2000s, globalization in financial markets has been increasing, strengthening market connectedness. Consequently, this has affected risk-return patterns and limited diversification benefits. The purpose of this report is to deepen understanding into the co-movements in the real estate securities market and the forces behind market integration, which is important for investors to evaluate potential risks and rewards of cross-country real estate diversification. Our findings suggest that during periods of stress in the European LRE sector, both bank and non-bank financial equity indices show an increase in tail risk. However, the relationship is bidirectional, with LRE exhibiting greater downside risks in periods of financial market distress. Larger and more leveraged LRE companies are more exposed to systemic events, however firms can mitigate their systemic risk vulnerability by increasing their liquidity & income buffer. Additionally, we demonstrated in a portfolio optimization exercise that there are distinct periods when LRE allocation is a beneficial and important diversification tool against systemic exposure. Overall, our findings suggest that investors and equity analysts should consider alternative portfolio optimization approaches that not only factor in risk (volatility of returns) and portfolio return but also integrate ideas for minimizing systemic risk within their portfolios. These strategies can help reduce portfolio vulnerability to systemic shocks, such as a recession, geopolitical, macro-economic, or financial market risks.''