International Evidence on Real Estate as a Portfolio Diversifier

46 Pages Posted: 3 Jan 2007

See all articles by Martin Hoesli

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Geneva - Research Center for Statistics; 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

Abstract

This paper provides an international comparison of the benefits of including real estate assets in mixed-asset portfolios. 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 15% to 25%, and remains stable when the level of the standard deviation of real estate is altered. Real estate allocation between domestic and nondomestic assets, however, varies substantially across countries, depending on whether returns are hedged or not.

Keywords: mixed-asset portfolio, real estate, diversification, international, domestic

JEL Classification: L85, D40, D31, D21, D57, D61, D81, D91, D92

Suggested Citation

Hoesli, Martin Edward Ralph and Lekander, Jon and Witkiewicz, Witold, International Evidence on Real Estate as a Portfolio Diversifier. Journal of Real Estate Research, Vol. 26, No. 2, 2004. Available at SSRN: https://ssrn.com/abstract=954729

Martin Edward Ralph Hoesli (Contact Author)

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

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Geneva 4, 1211
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+41 22 379 8122 (Phone)
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Swiss Finance Institute

c/o University of Geneva
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University of Geneva - Research Center for Statistics ( email )

Geneva
Switzerland

University of Aberdeen - Business School ( email )

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+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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