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New Evidence on asymmetric dependence in the returns from U.S. Real Estate Estate Investment Trusts

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  • Eva Steiner
  • Jamie Alcock

Abstract

A robust assessment of asymmetric dependence is crucial for determining the benefits of diversification associated with including real estate in mixed-asset portfolios, but analysing asymmetric dependence is a complex, multi-dimensional problem. Using Monte Carlo simulations, we identify the most suitable metric of asymmetric dependence out of a range of methodologies commonly employed in real estate finance: the Adjusted J statistic (Alcock and Hatherley, 2010). We employ this statistic to empirically examine the dependence structures in a large sample of U.S. Real Estate Investment Trusts (REITs) and a broad range of benchmark assets over the period 1997-2010. Our results suggest that when we control for linear dependence and focus on the strength, direction and statistical significance of higher-order, asymmetric dependence, the benefits of diversification offered by REITs are stronger than sometimes reported, while the dependence with bonds appears to be more complex than previously assumed.

Suggested Citation

  • Eva Steiner & Jamie Alcock, 2011. "New Evidence on asymmetric dependence in the returns from U.S. Real Estate Estate Investment Trusts," ERES eres2011_161, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2011_161
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    References listed on IDEAS

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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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