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The Relative Effect of Property Type and Country Factors in Reduction of Risk of Internationally Diversified Real Estate Portfolios

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  • John Glascock

    ()

  • Lynne Kelly

    ()

Abstract

We examine and test the merits of diversifying portfolios of real estate securities internationally and across property types. Our analysis covers the period January 1990 through July 2005. Using data from the Global Property Research GPR 250 Property Securities Index, which has monthly prices for five property type indexes in 21 countries, we decompose country and property type sources of variation in real estate security returns. We find that property type effects are smaller than country effects. Property type specialization explains only 6% of the variance of national real estate securities index returns. Because property type effects are so small, country diversification is a more effective tool for achieving risk reduction than property type diversification. In addition, we find evidence that the relative importance of country effects is decreasing while that of industry effects is increasing. However, country effects continue to dominate property type effects. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11146-007-9014-1
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Bibliographic Info

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

Volume (Year): 34 (2007)
Issue (Month): 3 (April)
Pages: 369-384

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Handle: RePEc:kap:jrefec:v:34:y:2007:i:3:p:369-384

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

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Keywords: Real estate; Property type categories; Stock market returns;

References

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  1. Mike Miles & Tom Mc Cue, 1982. "Historic Returns and Institutional Real Estate Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(2), pages 184-199.
  2. Foort HAMELINK & Martin HOESLI, 2003. "What Factors Determine International Real Estate Security Returns?," FAME Research Paper Series rp50, International Center for Financial Asset Management and Engineering.
  3. Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
  4. Mike Miles & Tom McCue, 1984. "Commercial Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 355-377.
  5. Griffin, John M. & Andrew Karolyi, G., 1998. "Another look at the role of the industrial structure of markets for international diversification strategies," Journal of Financial Economics, Elsevier, vol. 50(3), pages 351-373, December.
  6. Hwahsin Cheng & John L. Glascock, 2006. "Stock Market Linkages Before and After the Asian Financial Crisis: Evidence from Three Greater China Economic Area Stock Markets and the US," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 297-315.
  7. Kennedy, Peter, 1986. "Interpreting Dummy Variables," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 174-75, February.
  8. Agénor,Pierre-Richard & Miller,Marcus & Vines,David & Weber,Axel (ed.), 2006. "The Asian Financial Crisis," Cambridge Books, Cambridge University Press, number 9780521029001, April.
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Cited by:
  1. Kim Hiang Liow, 2010. "Integration among USA, UK, Japanese and Australian securitised real estate markets: an empirical exploration," Journal of Property Research, Taylor & Francis Journals, vol. 27(4), pages 289-308, February.
  2. Robert Edelstein & Wenlan Qian & Desmond Tsang, 2011. "How Do Institutional Factors Affect International Real Estate Returns?," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 130-151, July.
  3. Geoff Willcocks, 2009. "UK Housing Market: Time Series Processes with Independent and Identically Distributed Residuals," The Journal of Real Estate Finance and Economics, Springer, vol. 39(4), pages 403-414, November.

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