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Leverage and Foreign Investment in U.S. Real Estate

Despite the large-scale purchase of U.S. real estate by foreign investors, empirical evidence has recently been offered that suggests that such investments may not be efficient for portfolio optimization. From the foreign perspective, free-floating exchange rates appear to introduce a level of risk to U.S. real estate assets that overrides any potential diversification benefits. For many years, corporate managers have borrowed in the home-country currency of their foreign assets to limit exchange risk exposure. This study investigates this strategy by examining the utility of U.S. dollar-denominated leverage to foreign investors in U.S. real estate. Specifically, efficient frontiers are constructed for British and Japanese investors to estimate the diversification gains available from including dollar-leveraged U.S. real estate in their respective investment portfolios.

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File URL: http://pages.jh.edu/jrer/papers/pdf/past/vol07n01/v07p033.pdf
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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 7 (1992)
Issue (Month): 1 ()
Pages: 33-58

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Handle: RePEc:jre:issued:v:7:n:1:1992:p:33-58
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/Email:

Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Web: http://pages.jh.edu/jrer/about/get.htm Email:


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  1. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
  2. Elton, Edwin J & Gruber, Martin J & Padberg, Manfred W, 1976. "Simple Criteria for Optimal Portfolio Selection," Journal of Finance, American Finance Association, vol. 31(5), pages 1341-57, December.
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