Statistical Properties of Securitised Real Estate Investments in Germany

Due to the recent downturn of international equity markets the interest in real estate investments has soared. However, the well know problems of direct real estate investments complicate becoming well diversified with this investment class. Securitised forms of real estate investment can provide a solution to this problem. Shares of real estate investment companies are very popular in this context. The German market for securitised real estate investments additionally provides open ended real estate mutual funds (so called ÏDeutsche Offene Immobilienfondsó). An open ended real estate mutual funds is a pool of money form many investors, that is invested in real estate by a special investment company that acts as a trustee. Thus the individual investors are directly involved in the real estate market. This study is based on monthly, quarterly, and yearly return data from January 1975 until September 2002. It seeks to identify the financial characteristics of investments into open ended real estate mutual funds and compares them with those of other major asset classes, e.g. bonds and equities. We provide deep insight into the univariate and multivariate return characteristics of the assets. Among other things, analyses of nominal, real, and residual returns, cyclical behaviour, contemporaneous and cross correlations, lead-lag structure, and extreme comovements were applied. Empirical evidence suggests that the financial characteristics of open ended real estate mutual funds clearly distinguishes them from other (financial) asset classes. Furthermore, these characteristics are in many respects similar to those know from direct real estate investments.