Uncertainty and Foreign Real Estate Investment

Abstract

Published research has offered little evidence in support of foreign real estate investment. Most of the literature suggests that foreign real estate yields investors in mixed-asset portfolios no tangible benefits in terms of diversification gains. However all these studies were done on the basis of point estimates where they solve for a single unique optimum portfolio composition. Thus, earlier research has left the impression that foreign real estate is "never" optimal. Here we use a bootstrap simulation to introduce uncertainty into the analysis. Our results suggest that although foreign real estate is not likely to provide investors with significant diversification benefits, substantial amounts of foreign real estate can potentially be optimal.

JEL Classification: R33