Diversification Potential in Real Estate Portfolios
(2021) , 27 pages
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- Abstract
- Real estate, despite its spatial fixity, is subject to considerable cross-border investment flows. However, it may be surmised that the diversification potential of international real esta te investments dwindles if markets become increasingly interlinked. Building on a unique dataset of direct real estate markets covering 16 OECD countries over the period 1999-2018, we compare country-level and sector-level diversification potential. We apply a relative Sharpe ratio loss approach and develop a modified version of this measure, relying on the modified Value-at-Risk, which is robust to non-normality. Using a studentized circular blockbootstrap procedure, robust confidence intervals for both measures are built. This new diversification test provides investors and analysts with a valuable tool as it delivers both estimates and robust significance levels. The empirical findings broadly reveal that international diversification strategies outperform sectoral diversification of real estate assets.
- Affiliations
Citations
Candelon, B., Fuerst, F., & Hasse, J.-B. (2021). Diversification Potential in Real Estate Portfolios (LIDAM Discussion Paper LFIN 2021/01). https://hdl.handle.net/2078.5/116333