Interconnectedness between real estate returns and sustainable investments : A cross-quantilogram and quantile coherency approach

The real estate sector is a substantial energy consumer, contributing to a large share of global greenhouse gas emissions. Despite the known links between the real estate sector and sustainable assets, studies exploring co-movements or dependence between them are still scarce. The present paper contributes to this challenging problem by capturing and analyzing the non-linear dependence over time and frequency between real estate returns and sustainable assets - green bonds, clean energy and environmental, social, and governance (ESG) stocks. We adopt a modeling approach that utilizes both the cross-quantilogram and the quantile coherency method. Our empirical results indicate unidirectional dependence from the real estate sector to most sustainable assets in both tails and under normal market conditions, although bidirectional dependence in the lower quantiles. Moreover, based on recursive window estimations, when the Covid-19 period is included, green bond and real estate returns are tail-dependent both during boom and bust periods. However, in non-pandemic periods, higher dependency is found during booms. Furthermore, the returns of the green bonds are less dependent on real estate returns compared to other sustainable assets. Our findings are potentially relevant for investment portfolio and public policy decision-making.