The Relative Effect of Property Type and Country Factors in Reduction of Risk of Internationally Diversified Real Estate Portfolios

The Relative Effect of Property Type and Country Factors in Reduction of Risk of Internationally... We examine and test the merits of diversifying portfolios of real estate securities internationally and across property types. Our analysis covers the period January 1990 through July 2005. Using data from the Global Property Research GPR 250 Property Securities Index, which has monthly prices for five property type indexes in 21 countries, we decompose country and property type sources of variation in real estate security returns. We find that property type effects are smaller than country effects. Property type specialization explains only 6% of the variance of national real estate securities index returns. Because property type effects are so small, country diversification is a more effective tool for achieving risk reduction than property type diversification. In addition, we find evidence that the relative importance of country effects is decreasing while that of industry effects is increasing. However, country effects continue to dominate property type effects. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

The Relative Effect of Property Type and Country Factors in Reduction of Risk of Internationally Diversified Real Estate Portfolios

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Publisher
Kluwer Academic Publishers-Plenum Publishers
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-007-9014-1
Publisher site
See Article on Publisher Site

Abstract

We examine and test the merits of diversifying portfolios of real estate securities internationally and across property types. Our analysis covers the period January 1990 through July 2005. Using data from the Global Property Research GPR 250 Property Securities Index, which has monthly prices for five property type indexes in 21 countries, we decompose country and property type sources of variation in real estate security returns. We find that property type effects are smaller than country effects. Property type specialization explains only 6% of the variance of national real estate securities index returns. Because property type effects are so small, country diversification is a more effective tool for achieving risk reduction than property type diversification. In addition, we find evidence that the relative importance of country effects is decreasing while that of industry effects is increasing. However, country effects continue to dominate property type effects.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Mar 31, 2007

References

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