Continental shift? An analysis of convergence trends in European real estate equities

European economic and political integration have been recognised as having implications for patterns of performance in national real estate and capital markets and have generated a wide body of research and commentary. In 1999, progress towards monetary integration within the European Union culminated in the introduction of a common currency and monetary policy. This paper investigates the effects of this ‘event’ on the behaviour of stock returns in European real estate companies. A range of statistical tests is applied to the performance of European property companies to test for changes in segmentation, co-movement and causality. The results suggest that, relative to the wider equity markets, the dispersion of performance is higher, correlations are lower, a common contemporaneous factor has much lower explanatory power whilst lead-lag relationships are stronger. Consequently, the evidence of transmission of monetary integration to real estate securities is less noticeable than to general securities. Less and slower integration is attributed to the relatively small size of the real estate securities market and the local and national nature of the majority of the companies’ portfolios.