Global Property Market Diversification

Global Property Market Diversification This paper examines global diversification benefits provided by developed property markets over 1992–2007. We employ a cointegration methodology, invariant to pair-wise correlational instability plaguing MPT approaches, to investigate regional and country property market diversification benefits for U.S. domiciled global real estate investors. We show, theoretically and empirically, the cointegration procedure aptly identifies markets integrated by common trends that mitigate diversification potential. We show global property markets are interregionally independent but find intraregional market cointegration. A portfolio of markets independent of cointegrating relationships performs best during the period but is insufficiently diversified relative to a cointegrated portfolio. Independent country markets do account for the bulk of global property diversification gains but cointegrated markets, particularly from the North American and Asia Pacific regions, retain some diversifying qualities. We also show cointegrated markets converge toward benchmark characteristics, reducing their attraction as portfolio candidates. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Global Property Market Diversification

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Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-009-9178-y
Publisher site
See Article on Publisher Site

Abstract

This paper examines global diversification benefits provided by developed property markets over 1992–2007. We employ a cointegration methodology, invariant to pair-wise correlational instability plaguing MPT approaches, to investigate regional and country property market diversification benefits for U.S. domiciled global real estate investors. We show, theoretically and empirically, the cointegration procedure aptly identifies markets integrated by common trends that mitigate diversification potential. We show global property markets are interregionally independent but find intraregional market cointegration. A portfolio of markets independent of cointegrating relationships performs best during the period but is insufficiently diversified relative to a cointegrated portfolio. Independent country markets do account for the bulk of global property diversification gains but cointegrated markets, particularly from the North American and Asia Pacific regions, retain some diversifying qualities. We also show cointegrated markets converge toward benchmark characteristics, reducing their attraction as portfolio candidates.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Apr 14, 2009

References

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