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Diversification Benefits of U.S. REITs for Private Investors Holding Asian Stocks

Author

Listed:
  • Tan, Ying Hsuan
  • Lim, Siok Jin

Abstract

This study endeavours to explore the potential diversification advantages stemming from the inclusion of United States Real Estate Investment Trusts (REITs) within investment portfolios heavily focused on Asian stock indices. Utilizing a robust framework comprising multivariate GARCH (Generalized Autoregressive Conditional Heteroskedasticity) modelling and comprehensive Wavelet Transform analyses, this research investigates the intricate dynamics between US REITs and key Asian stock markets spanning the period from 2018 to 2023. This research contributes comprehensive empirical evidence, indicating that despite inherent volatility, US REITs showcase relatively weaker correlations with individual Asian stock indices. This highlights the possibility of diversification benefits, rendering US REITs potentially independent of the movements witnessed in Asian stock indices, particularly during select temporal intervals. Moreover, this study yields crucial insights for investors, offering guidance for optimized portfolio allocations and risk management strategies within a constantly evolving global financial landscape. The findings underscore the significance of considering US REITs as potential diversification assets for portfolios containing Asian stocks.

Suggested Citation

  • Tan, Ying Hsuan & Lim, Siok Jin, 2023. "Diversification Benefits of U.S. REITs for Private Investors Holding Asian Stocks," MPRA Paper 123668, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123668
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    References listed on IDEAS

    as
    1. Pesaran, Bahram & Pesaran, M. Hashem, 2007. "Modelling Volatilities and Conditional Correlations in Futures Markets with a Multivariate t Distribution," IZA Discussion Papers 2906, Institute of Labor Economics (IZA).
    2. Pesaran, M.H., 2010. "Conditional Volatility and Correlations of Weekly Returns and the VaR Analysis of 2008 Stock Market," Cambridge Working Papers in Economics 1025, Faculty of Economics, University of Cambridge.
    3. Siok Jin Lim & Andaeus Zun Khan Neoh, 2023. "Does Bitcoin Provide a Hedge to Islamic Stock Markets During and Post-COVID-19 Outbreak? Evidence From Asia Based on a Multivariate-GARCH Approach," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 4(2), pages 1-7.
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    More about this item

    Keywords

    Portfolio Diversification; Asian Stock Indices; United States REITs; Conditional Correlations; Maximum Overlap Discrete Wavelet Transform (MODWT); Continuous Wavelet Transform (CWT); Multivariate GARCH; Investment Analysis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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