Real Estate Diversification: By Country or by Continent?
Posted: 13 Sep 1999
Date Written: August 1994
This paper investigates whether a continental factor in real estate returns exists. To this end, a numeraire independent form of principal component analysis is used to see if real estate returns for countries within a continent move together. The methodology is applied on return indices of property shares for 12 countries from 3 continents. The findings indicate that real estate returns for countries within a continent indeed show common movements. This has two implications. The first is that investors cannot realize optimal international real estate diversification by investing in only one continent. To achieve that goal, a truly global scope is needed. The second implication is that international real estate investors can achieve near- optimal international diversification by investing in one country from each continent.
JEL Classification: F30
Suggested Citation: Suggested Citation