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International diversification with securitized real estate and the veiling glare from currency risk

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  • Kroencke, Tim A.
  • Schindler, Felix

Abstract

This paper analyzes diversification benefits from international securitized real estate in a mixed-asset context. We apply regression-based mean-variance efficiency tests, conditional on currency-unhedged and fully hedged portfolios to account for systematic foreign exchange movements. From the perspective of a US investor, it is shown that, first, international diversification is superior to a US mixed-asset portfolio, second, adding international real estate to an already internationally diversified stock and bond portfolio results in a further significant improvement of the risk-return trade-off and, third, considering unhedged international assets could lead to biased asset allocation decisions not realizing the true diversification benefits from international assets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 7 ()
Pages: 1851-1866

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:7:p:1851-1866

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Diversification benefits; International mixed-asset portfolios; International real estate; Currency hedging; Spanning tests; Out-of-sample tests;

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References

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Cited by:
  1. Auer, Benjamin R. & Schuhmacher, Frank, 2013. "Performance hypothesis testing with the Sharpe ratio: The case of hedge funds," Finance Research Letters, Elsevier, vol. 10(4), pages 196-208.

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