Structuring Global Property Portfolios: A Cointegration Approach

30 Pages Posted: 21 Mar 2013

See all articles by John G. Gallo

John G. Gallo

University of Texas at Arlington - Department of Finance and Real Estate

Larry J. Lockwood

Texas Christian University

Ying Zhang

Fairfield University

Abstract

We create globally diversified real estate portfolios using cointegration methods over 1992-2009. Cointegration is robust to intertemporal correlation instability, identifies markets that share common factors and long-term trends, and identifies leading markets that do not respond to deviations from equilibrium within each cointegrated region. Our cointegration inspired model portfolios outperform the mean-variance optimized portfolio by 575-725 basis points annually. Differences in performance remain significant over separate time periods, and after controlling for various risk factors. Collectively, the results help clarify property portfolio selection and allocation policy vital for institutional investors and global real estate portfolio managers.

Keywords: performance, conitegration, allocation policy

Suggested Citation

Gallo, John G. and Lockwood, Larry J. and Zhang, Ying, Structuring Global Property Portfolios: A Cointegration Approach. Journal of Real Estate Research, Vol. 35, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=2236254

John G. Gallo (Contact Author)

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States

Larry J. Lockwood

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-921-7420 (Phone)
817-921-7227 (Fax)

Ying Zhang

Fairfield University ( email )

Dolan School of Business
1073 North Benson Road
Fairfield, CT 06824
United States

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