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International Real Estate Diversification: Empirical Tests using Hedged Indices

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Abstract

This study examines the potential diversification opportunities arising from the extension of real estate portfolios into an international environment. Using data for ten countries, the article compares the diversification benefits obtained from both real estate securities and hedged indices. The hedged indices are constructed in line with the methodology proposed by Giliberto (1993) and are examined as a potential alternative proxy for the direct market. The results indicate that while benefits do arise from international diversification, the results tend to be statistically significant only when local returns are used and no constraints are imposed on the optimal portfolios. In addition, there are concerns over the reliability of the mean return and correlation coefficients obtained using the hedged indices.

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  • Simon Stevenson, 2000. "International Real Estate Diversification: Empirical Tests using Hedged Indices," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 105-131.
  • Handle: RePEc:jre:issued:v:19:n:1:2000:p:105-131
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    Cited by:

    1. Hamelink, F. & Hoesli, M., 2002. "What factors determine real estate security returns?," Serie Research Memoranda 0017, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    2. repec:kap:jrefec:v:56:y:2018:i:3:d:10.1007_s11146-017-9646-8 is not listed on IDEAS
    3. Foort Hamelink & Martin Hoesli, 2004. "What Factors Determine International Real Estate Security Returns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(3), pages 437-462, September.
    4. Craig Ellis & Patrick J. Wilson & Ralf Zurbruegg, 2007. "Real Estate ‘Value’ Stocks and International Diversification," Journal of Property Research, Taylor & Francis Journals, vol. 24(3), pages 265-287, September.
    5. Peñaranda, Francisco & Sentana, Enrique, 2012. "Spanning tests in return and stochastic discount factor mean–variance frontiers: A unifying approach," Journal of Econometrics, Elsevier, vol. 170(2), pages 303-324.
    6. Haß, Lars Helge & Johanning, Lutz & Rudolph, Bernd & Schweizer, Denis, 2012. "Open-ended property funds: Risk and return profile — Diversification benefits and liquidity risks," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 90-107.
    7. Bernard Thion & Tatiana Bouzdine Chameeva, 2001. "Comparative Analysis of Several Models of Price Indices in Real Estate Transactions," ERES eres2001_285, European Real Estate Society (ERES).
    8. Barry, Christopher B. & Rodriguez, Mauricio, 2004. "Risk and return characteristics of property indices in emerging markets," Emerging Markets Review, Elsevier, vol. 5(2), pages 131-159, June.
    9. Laura Ryan, 2010. "Nowhere to hide: an analysis of investment opportunities in listed property markets during financial market crises," Journal of Property Research, Taylor & Francis Journals, vol. 28(2), pages 97-131, May.
    10. Pat Wilson & Ralf Zurbruegg, 2003. "International Diversification of Real Estate Assets - Is it Worth It? Evidence from the Literature," Working Paper Series 126, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    11. John Gallo & Ying Zhang, 2010. "Global Property Market Diversification," The Journal of Real Estate Finance and Economics, Springer, vol. 41(4), pages 458-485, November.
    12. repec:jre:issued:v:38:n:4:2016:p:595_624 is not listed on IDEAS
    13. Martin Hoesli & Jon Lekander & Witold Witkiewicz, 2004. "New International Evidence on Real Estate as a Portfolio Diversifier," Journal of Real Estate Research, American Real Estate Society, vol. 26(2), pages 161-206.
    14. Chyi Lee & Simon Stevenson & Ming-Long Lee, 2014. "Futures Trading, Spot Price Volatility and Market Efficiency: Evidence from European Real Estate Securities Futures," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 299-322, February.
    15. Shaukat, Mughees, 2010. "The Benefits and Importance of Commercial Real Estate," MPRA Paper 28268, University Library of Munich, Germany.
    16. repec:kap:jrefec:v:56:y:2018:i:2:d:10.1007_s11146-017-9601-8 is not listed on IDEAS
    17. Patrick Wilson & Simon Stevenson & Ralf Zurbruegg, 2007. "Foreign Property Shocks and the Impact on Domestic Securitized Real Estate Markets: An Unobserved Components Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 34(3), pages 407-424, April.
    18. George D. Cashman & David M. Harrison & Hainan Sheng, 2015. "Political Risk and the Cost of Capital in Asia-Pacific Property Markets," International Real Estate Review, Asian Real Estate Society, vol. 18(3), pages 331-364.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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