The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences

53 Pages Posted: 11 Nov 2008

See all articles by Crocker H. Liu

Crocker H. Liu

Arizona State University

Jianping Mei

New York University (NYU) - Department of Finance

Date Written: December 1996

Abstract

We investigate whether international real estate related securities offer any incremental diversification benefits over foreign stocks using mean-variance analysis together with a multifactor latent variable model. The study finds that diversification benefits are primarily driven by unanticipated returns which in turn are partly driven by changes in exchange rate risk. Although exchange rate risk accounts for a larger portion of the return fluctuation in real estate related securities relative to common stocks, international real estate securities are found to provide some incremental diversification benefits over common stocks even if currency risks are hedged.

Keywords: Predictability, Diversification, International Property Trusts

Suggested Citation

Liu, Crocker H. and Mei, Jianping, The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences (December 1996). NYU Working Paper No. FIN-96-033. Available at SSRN: https://ssrn.com/abstract=1298298

Crocker H. Liu (Contact Author)

Arizona State University ( email )

W.P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-3259 (Phone)
480-965-8539 (Fax)

HOME PAGE: http://www.public.asu.edu/~chliu1

Jianping Mei

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0354 (Phone)
212-995-4221 (Fax)

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