Downside Risk Optimization in Securitized Real Estate Markets
33 Pages Posted: 9 Jun 2010
Date Written: 2010
Abstract
Optimization of international securitized real estate portfolios has been a key topic for several decades. However, most previous analysis has focused on regional diversification by applying the traditional mean-variance (MV) framework suggested by Markowitz (1952) even if the limitations of this approach are well-known. Thus, we focus on a more suitable and appealing downside risk (DR) framework suggested by Estrada (2008), which applies a similar optimization algorithm as the MV framework. The analysis covers the eight largest securitized real estate markets from January 1990 to December 2009 and thus captures a more global perspective. The main findings are as follows: first, the return distributions are non-normally distributed and negatively skewed. Second, optimal portfolio weights differ substantially between the MV and DR approach. Third, portfolio weights are shifted from the U.S. and Australian market to the Dutch and the French market when applying the DR framework instead of the MV framework. Fourth, the dominance of the DR framework is well-documented by comparing out-of-sample performance. The empirical results are remarkable and emphasize the practical merit of the presented DR framework for investors and portfolio managers.
Keywords: Downside Risk Analysis, International Real Estate Markets, Portfolio Management, Portfolio Optimization, Out-of-Sample Analysis
JEL Classification: C61, G11, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
International Real Estate Returns: A Multifactor, Multicountry Approach
By Shaun A. Bond, George Andrew Karolyi, ...
-
What Factors Determine International Real Estate Security Returns?
By Foort Hamelink and Martin Hoesli
-
Risk-Adjusted Performance of Real Estate Stocks: Evidence from Developing Markets
By Joseph T. L. Ooi and Kim Hiang Liow
-
By Foort Hamelink, Helene Harasty, ...
-
By Martin Hoesli and Camilo Serrano
-
Are Securitized Real Estate Returns More Predictable than Stock Returns?
By Camilo Serrano and Martin Hoesli
-
By John L. Glascock and Lynne J. Kelly
-
By Camilo Serrano and Martin Hoesli
-
Global Securitized Real Estate Benchmarks and Performance
By Camilo Serrano and Martin Hoesli
-
Long-Term Co-Memories and Short-Run Adjustment: Securitized Real Estate and Stock Markets
By Kim Hiang Liow and Haishan Yang