A Class of its Own? The Role of Sustainable Real Estate in a Conditional Value at Risk Multi-Asset Portfolio
36 Pages Posted: 19 Sep 2014
Date Written: September 17, 2014
Current research on sustainable property investment focuses mainly on property-level profitability of green buildings along with the development and implementation of eco-certifications. A second strand of studies investigates the company-level financial implications of corporate social responsibility agendas. This paper seeks to expand the current literature by analyzing the effect of Socially Responsible Investments (SRI) within a multi-asset portfolio optimization model. It also attempts to bridge the existing gap in the real estate literature between sustainability principles and investment analysis. To this aim, listed real estate companies with an active sustainability agenda, identified through the MSCI ESG database, represent the sustainable real estate asset class. Applying a number of robust optimization techniques, we establish empirically whether diversification benefits can be achieved by investing in companies with a proven track record in sustainability. The results of the study highlight the potential contribution of listed real estate companies with high sustainability ratings to an institutional investor´s portfolio taking into account differences in investment style and risk aversion.
Keywords: Social Responsible Investment, Sustainable Real Estate, Portfolio Optimization, Asset Allocation, CVaR
JEL Classification: G11, G12, EE44, F3, R33
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