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Strategic asset allocation and the demand for real estate: international evidence

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  • Zaghum Umar

    (Zayed University)

  • Dennis Olson

    (Zayed University)

Abstract

This paper analyzes the portfolio demand for real estate in a strategic asset allocation framework. We quantify the welfare losses from not including real estate in the traditional equity and bond portfolio for a typical investor. Previous studies have examined short-run and long-run optimal portfolio allocations for real estate in a North American setting. We employ forty-two real estate indices encompassing both developed and emerging economies, regions, and sectors. Our results show that in the short run, real estate is a desirable asset class for aggressive and conservative investors in all countries. At longer time horizons, real estate provides little diversification benefits in any of the eighteen sample countries. Thus, our study confirms North American results that real estate provides short run, but rather small long-run portfolio diversification benefits.

Suggested Citation

  • Zaghum Umar & Dennis Olson, 2022. "Strategic asset allocation and the demand for real estate: international evidence," Empirical Economics, Springer, vol. 62(5), pages 2461-2513, May.
    • Handle: RePEc:spr:empeco:v:62:y:2022:i:5:d:10.1007_s00181-021-02090-8
    DOI: 10.1007/s00181-021-02090-8
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    Cited by:

    1. Mensi, Walid & Gubareva, Mariya & Teplova, Tamara & Kang, Sang Hoon, 2023. "Spillover and connectedness among G7 real estate investment trusts: The effects of investor sentiment and global factors," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    2. Dejan Živkov & Boris Kuzman & Jonel Subić, 2023. "Multi-frequency downside risk interconnectedness between soft agricultural commodities," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(8), pages 332-342.
    3. Umar, Zaghum & Alwahedi, Wafa & Zaremba, Adam & Vo, Xuan Vinh, 2022. "Return and volatility connectedness of the non-fungible tokens segments," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).

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    More about this item

    Keywords

    Dynamic asset allocation; Optimal portfolio; Real estate investment; Myopic demand; Intertemporal hedging demand;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other

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