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Currency Risk and International Diversification of Property Investment

Author

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  • Kwame Addae-Dapaah
  • Yeo Hui Siang

Abstract

The paper focuses on the impact of exchange rate volatility on international diversification of direct investment in property for the period 1986-1997 inclusive. After computing the currency unadjusted and adjusted returns and risk for, and correlation of returns between the sampled countries, Matlab Optimization Toolbox is used to determine the optimal portfolio composition. It is found, through statistical tests, that although the upside/downside currency risk of a single foreign countryís property investment can be substantial, the risk is not statistically significant. Similarly, the difference between the unadjusted and adjusted optimal portfolio returns is found to be statistically insignificant to imply that hedging may not be necessary for a well-diversified portfolio of international real estate investment.

Suggested Citation

  • Kwame Addae-Dapaah & Yeo Hui Siang, 2001. "Currency Risk and International Diversification of Property Investment," ERES eres2001_102, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_102
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    More about this item

    JEL classification:

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

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