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Diversification Benefits of Japanese Real Estate Over the Last Four Decades

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  • Neal Maroney

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  • Atsuyuki Naka
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    Abstract

    This paper studies the benefits of diversifying into real estate and other assets that typify the wealth held by Japanese investors. We examine movements in mean variance frontiers by employing spanning tests to assess the statistical significance of frontier shifts. We also investigate the impact of shifts in mean variance frontiers before and after the precipitous decline in Japanese real estate and stock market values that began in 1990. Spanning tests show that real estate, short and long-term bonds, and Japanese equity provide significant diversification benefits. We find that mean variance frontiers shift after 1990. Statistically significant shifts are also economically important as measured by Sharpe ratio changes. Although significant, the portfolio weights on Japanese real estate are relatively small compared to their composition found in surveys of Japanese household wealth. Copyright Springer Science + Business Media, LLC 2006

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    Bibliographic Info

    Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

    Volume (Year): 33 (2006)
    Issue (Month): 3 (November)
    Pages: 259-274

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    Handle: RePEc:kap:jrefec:v:33:y:2006:i:3:p:259-274

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    Web page: http://www.springerlink.com/link.asp?id=102945

    Related research

    Keywords: Diversification benefits; Japanese real estate; Direct real estate investment; Spanning tests; Mean variance frontiers;

    References

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    1. French, K.R. & Poterba, J.M., 1990. "Are Japanese Stock Prices Too High?," Working papers 547, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-88, September.
    3. Yukio Noguchi, 1994. "Land Prices and House Prices in Japan," NBER Chapters, in: Housing Markets in the U.S. and Japan, pages 11-28 National Bureau of Economic Research, Inc.
    4. Patrick Wilson & Ralf Zurbruegg, 2003. "Does it Pay to Diversify Real Estate Assets? - A Literary Perspective," Centre for International Economic Studies Working Papers 2003-13, University of Adelaide, Centre for International Economic Studies.
    5. Robert R. Grauer & Nils H. Hakansson, 1995. "Gains From Diversifying Into Real Estate: Three Decades of Portfolio Returns Based on the Dynamic Investment Model," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(2), pages 117-159.
    6. William N. Goetzmann & Bradford Case & K. Geert Rouwenhorst, 1999. "Global Real Estate Markets: Cycles And Fundamentals," Yale School of Management Working Papers ysm116, Yale School of Management.
    7. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
    8. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-62, April.
    9. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    10. Alan J. Ziobrowski & Brigitte J. Ziobrowski & Sidney Rosenberg, 1997. "Currency Swaps and International Real Estate Investment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(2), pages 223-251.
    11. Tokuo Iwaisako, 2003. "Household Portfolios in Japan," NBER Working Papers 9647, National Bureau of Economic Research, Inc.
    12. Jack H. Rubens & David A. Louton & Elizabeth J. Yobaccio, 1998. "Measuring the Significance of Diversification Gains," Journal of Real Estate Research, American Real Estate Society, vol. 16(1), pages 73-86.
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    Cited by:
    1. Sherry Zhefang ZHOU & Helen Xiaohui BAO, 2009. "Modelling Price Dynamics In The Hong Kong Property Market," Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 4(1S), pages 8-26, April.

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