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Structuring Global Property Portfolios: A Cointegration Approach

Author

Listed:
  • John G. Gallo

    (University of Iowa)

  • Larry J. Lockwood

    (Texas Christian University)

  • Ying Zhang

    (Fairfield University)

Abstract

We create globally diversified real estate portfolios using cointegration methods over 1992-2009. Cointegration is robust to intertemporal correlation instability, identifies markets that share common factors and long-term trends, and identifies leading markets that do not respond to deviations from equilibrium within each cointegrated region. Our cointegration-inspired model portfolios outperform the mean-variance optimized portfolio by 575 to 725 basis points annually. Differences in performance remain significant over separate time periods, and after controlling for various risk factors. Collectively, our results help clarify property portfolio selection and allocation policy vital for institutional investors and global real estate portfolio managers.

Suggested Citation

  • John G. Gallo & Larry J. Lockwood & Ying Zhang, 2013. "Structuring Global Property Portfolios: A Cointegration Approach," Journal of Real Estate Research, American Real Estate Society, vol. 35(1), pages 53-82.
  • Handle: RePEc:jre:issued:v:35:n:1:2013:p:53-82
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    References listed on IDEAS

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    6. Hui, Eddie C.M. & Chan, Ka Kwan Kevin, 2019. "Alternative trading strategies to beat “buy-and-hold”," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 534(C).
    7. Kim Hiang Liow & Felix Schindler, 2014. "An Assessment of the Relationship between Public Real Estate and Stock Markets at the Local, Regional, and Global Levels," International Real Estate Review, Global Social Science Institute, vol. 17(2), pages 157-202.

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