COVID-19 and the daily rate of return of three major industry sector stock price indices related to real estate

Abstract

Purpose – This paper analyzes how three major industrial stock indices related to South Korean real estate industries are affected by the exogenous shock of the measures taken to control COVID-19, coupled with investor sentiment, which has global impacts. Design/methodology/approach – The paper uses daily stock market indices on three major stock price indices: construction industry sector index, real estate operating company (REOC) industry index and the real estate investment trust (REIT) industry index of the Korea Stock Exchange (KRX), from January 8, 2020, when the World Health Organization (WHO) began to issue official indicators regarding COVID-19, to March 27, 2020, the last trading day of the week during which the South Korean government's stock market stabilisation fund was launched. Findings – Results indicate the REIT sector's stock rate of return to be relatively less sensitive to impacts of COVID-19 compared to those of the two other indices. Impulse response analysis also shows similar results. Impulse response estimations indicate that earlier information of REITs has prominent significance in explaining changes in the time series process itself. Similar to findings of prior studies that have been conducted with long-term perspectives, results of our short-term study indicate that the medium-risk, medium-return characteristic of the real estate industry has significance even in short-term perspectives. Practical implications – REITs can be an investment vehicle that provides strong benefits of diversified investment for mutual fund investment managers even in the case of short-term exogenous market disruptions. Originality/value – The analysis run in the empirical exercise is the first to consider the sensibility between international stock exchanges to the effects of measures taken to control COVID-19 impact.