Diversification Benefits of Real Estate Investment Trusts in Dubai
22 Pages Posted: 16 Aug 2009
Date Written: August 11, 2009
This paper examines whether unleveraged REITs in Dubai help optimize the risk/return characteristics of a mixed asset portfolio. The performance is also analyzed using Shariah compliant REIT structures incorporating discussion of the performance of REITs operating in a zero-tax environment within the Modigliani and Miller (1958) framework. The empirical results confirms that investment in real estate via Dubai REITs would have substantially improved the performance of a mixed asset portfolio through its ability to hedge inflation, enhance returns and reduce volatility. These characteristics persisted under sensitivity testing. Furthermore, the conclusions find that leveraging the REIT produced increased risk without providing risk/return benefits.
Keywords: REIT, Emerging Markets, Dubai, Portfolio Diversification, Capital Structure
JEL Classification: G15, L85
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