International Evidence on Real Estate as a Portfolio Diversifier

FAME Research Paper No. 70

47 Pages Posted: 24 Jun 2003

See all articles by Martin Hoesli

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Jon Lekander

Aberdeen Property Investors Nordic Region

Witold Witkiewicz

Aberdeen Property Investors Nordic Region

Multiple version iconThere are 2 versions of this paper

Date Written: February 2003

Abstract

This paper provides an international comparison of the benefits of including real estate assets - both domestic and international - in mixed-asset portfolios. Data from seven countries on three continents are considered for a common time period (1987-2001) to facilitate comparisons. Real estate returns are desmoothed using a variant of the Geltner (1993) approach, and Bayes-Stein estimators are used to increase the stability of portfolio weight estimations. Both unhedged and hedged analyses are conducted. Real estate is found to be an effective portfolio diversifier, and even more so when both domestic and international real estate assets are considered. The optimal allocation to real estate is in the 15 to 25% range, and remains remarkably constant in the various analyses. The breakdown of the real estate allocation between domestic and non-domestic assets, however, is found to vary substantially across countries and depending on whether returns are hedged or not.

Keywords: mixed-asset diversification, real estate, portfolio allocations

JEL Classification: G11

Suggested Citation

Hoesli, Martin Edward Ralph and Lekander, Jon and Witkiewicz, Witold, International Evidence on Real Estate as a Portfolio Diversifier (February 2003). FAME Research Paper No. 70, Available at SSRN: https://ssrn.com/abstract=410741 or http://dx.doi.org/10.2139/ssrn.410741

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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Swiss Finance Institute

c/o University of Geneva
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Switzerland

University of Aberdeen - Business School ( email )

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Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Jon Lekander

Aberdeen Property Investors Nordic Region ( email )

Stockholm
Sweden

Witold Witkiewicz

Aberdeen Property Investors Nordic Region ( email )

Stockholm
Sweden

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