Paper to be presented at the Asian Real Estate Society (AsRES) Conference, Seoul, Korea, July 2002 CONDITIONAL VARIANCE TESTS OF INTEGRATION BETWEEN DIRECT AND INDIRECT REAL ESTATE MARKETS SING, Tien Foo* & SNG, Sook Beng Stephanie School of Building & Real Estate National University of Singapore 4 Architecture Drive Singapore 117556 Date: 03 May 2000 Abstract: This study tests the market integration hypothesis between the securitised and the unsecuritised real estate market by examining the information contents of their respective ex- post conditional volatility measures. The two markets are said to be integrated if the conditional volatility terms of one market does not contain incremental information for the ex-post conditional volatility of another market. Our empirical results showed no evidence of the ex-post returns of the direct real estate (PPI) market incorporating the market volatility of the securitized real estate asset. The ex-post conditional volatility of the PPI market, which contains only information on the past shock and the past conditional volatility, is sufficient to statistically explain the variation in the log-PPI price variations. However, there was significant evidence of incremental information flowing from conditional volatility of the unsecuritized property market to the securitized property market. Therefore, the securtized and unsecuritized real estate markets are integrated, but the integration is only uni- directional. Some degrees of segmentation is still observed as the information of property market (PPI) still has significant impacts on the returns of the property stock market. Keywords: Market Integration, Information Contents, Conditional Volatility * Correspondence please forward to the first author by mail or e-mail at bemstf@nus.eud.sg . Comments are appreciated. We wish to thank Professor Gerald Brown and Dr Seow Eng Ong for their kind comments on the earlier draft. The errors, if any, remain the responsibility of the authors.