Risk-return convergence in international public property markets

The main contribution of this study is to assess the risk-return convergence, as well as its relationship with the realised correlation, relative to the global public real estate, of 12 international developed public property markets during 1990-2011. Based on the Euclidean distance method we find that average risk-return distance of the sample markets thus computed has increased over time, implying a mean-variance divergence, albeit statistically insignificant. Most of the markets are more 'divergent', as well as being more volatile during the Asian financial crisis and Global financial crisis periods. There is some evidence that risk-return convergence is positively linked to increasing correlation with the global developed public real estate over the full study period. Finally, exchange rate variable has relatively little effect on the variation of the three distance measures. We conclude that the risk and return characteristics of the developed public property markets have not become less different from each other over time, implying that the idiosyncratic 'real estate factor' and 'country factor' of individual markets might have become more important in affecting the market integration over time. This analysis and evidence contributes to our understanding of the dynamics of international developed public property market integration in global investing.