1. Cointegration of Real Estate Stocks and REITs with Common Stocks, Bonds and Consumer Price Inflation - An International Comparison by Westerheide, Peter (2006)
This paper analyses the performance of real estate securities and their relationship to other asset classes as well as to consumer price inflation in an international comparison over the period from 1990 to 2004. The analysis focuses on the long run relationships, applying three different cointegration tests. It covers the US, Canada, Australia, Japan, the Netherlands, Belgium, France and Germany. Results show that real estate securities in most countries had a high performance in nominal and real terms. The average performance over the whole period (1990-2004) has been particularly high in capital market oriented countries in the sample (US, Australia), and also in France. Real estate securities have outperformed bond markets on a risk adjusted basis only in the US and in Australia, while an outperformance of stock markets can be observed also in Japan and France. Particularly in the period 2001 to 2004 real estate security market have soared in most countries with the notable exception of Germany. In general, real estate securities seem to represent an asset class distinct from bonds and stocks in most countries. In the long run they seem provide a potential for further diversification of asset portfolios. Additionally, real estate stocks provide a (weak) hedge against consumer price inflation in almost every country.
2. Commercial Real Estate: The Role of Global Listed Real Estate Equities in a Strategic Asset Allocation by Ibbotson (2006)
We analyzed the historical performance of six traditional asset classes plus North American, European, and Asian real estate from 1990 to 2005. Over 11 different levels of risk, as measured by the standard deviation of annual portfolio returns, ranging from 5% to 15%, the addition of these three asset sub-classes to the opportunity set improved efficient asset allocation returns by an average of 182 basis points! The vast majority of this benefit is attributed to the outstanding performance of North American real estate.
3. Regime Changes in International Securitized Property Markets by Kim H. Liow, Haihong Zhu, David K. Ho, and Kwame Addae-Dapaah (2004)
This study investigates the existence and nature of return and volatility shifts in international securitized property market returns over the period 1987-2003. The findings indicate that securitized property markets have strong switching behavior in volatility. They are either in a low return/high volatility state or in a high return/low volatility state. In addition, the two regimes are persistent with differences observed in the expected duration and frequency of shifts between the states among markets. The findings have important implications for optimal asset allocation and portfolio performance in international real estate markets.
4. Diversification Effects of Direct versus Indirect Real Estate Investments in the U.K. by Alastair Adair, Stanley McGreal and James R. Webb (2006)
This study uses annual data from 1975 through 2003 to construct mean-variance optimal portfolios for the United Kingdom. Real estate return data for all U.K properties from the Investment Property Databank (IPD), for U.K. pooled property funds, and for U.K. property shares are used, in addition to U.K. common stocks (equities) and gilts (government bonds). The different mixed-asset portfolio allocations using the different real estate return series are compared/contrasted. Finally, the return series are unbundled for U.K. IPD real estate, U.K. common stocks, and U.K. gilts into income and appreciation returns and additional optimal mean-variance portfolios, which are constructed for income returns, appreciation returns, and total returns (income and appreciation returns).
5. Ask Not Why International, Ask Why Not International by Philip Conner and Youguo Liang (2006)
‘Why international?’’ has become an increasingly familiar question asked by real estate investors in recent years. Traditionally, investors have justified allocations to international real estate with arguments based on either enhancing return or diversification. Both arguments are valid, of course. In fact, although debates over the merits of investing internationally often presume that the potential diversification and return enhancement benefits are somehow mutually exclusive, both can be realized with a carefully developed and executed investment strategy.
Still, for investors in the United States who have a wealth of opportunities available in their domestic market, the decision to invest overseas is more discretionary than it is for many of their foreign counterparts, particularly those investors whose domestic markets are too small to accommodate their desired real estate exposure. However, changes in the global marketplace over the past decade suggest that the opportunity costs associated with not investing internationally have increased. Today, at least three compelling arguments exist—prudence, diversification, and diverse opportunities—that suggest that U.S. investors should take a different approach when deciding whether or not to invest overseas.
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