Time and risk diversification in real estate investments: assessing the ex post economic value

Time and risk diversification in real estate investments: assessing the ex post economic value
Document type
Working Paper
Author(s)
Fugazza, Carolina; Guidolin, Massimo; Nicodano, Giovanna
Publisher
Manchester Business School
Date of publication
1 October 2009
Series
University of Manchester Business School Working Papers. No. 581
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

This item is only available to registered users

Register now or Log in

Your use of this content is subject to the terms and conditions of this portal

Welfare gains to long-horizon investors may derive from time diversification that exploits non-zero intertemporal return correlations associated with predictable returns. Real estate may thus become more desirable if its returns are negatively serially correlated. While it could be important for long horizon investors, time diversification has been mostly investigated in asset menus without real estate and focusing on in-sample experiments. This paper evaluates ex post, out-of-sample gains from diversification when E-REITs belong to the investment opportunity set. It finds that diversification into REITs increases both the Sharpe ratio and the certainty equivalent of wealth for all investment horizons and for both Classical and Bayesian (who account for parameter uncertainty) investors. The increases in Sharpe ratios are often statistically significant. However the out-of-sample average Sharpe ratio and realized expected utility of long-horizon portfolios are frequently lower than that of a one-period portfolio, which casts doubts on the value of time diversification.

Related to Trends: economic, social and technology trends affecting business

Follow the money: exploring the link between UK growth and workers' pay packets

Downloadable briefing note looking at the relationship between productivity and pay growth

From precarity to empowerment: women and the future of work

Downloadable paper on ensuring a fair future of work for women

Economic insecurity: the case for a 21st century safety net

Downloadable paper on how economic insecurity is experienced by workers

Agents of change: making innovation agencies as innovative as those they support

Downloadable paper on how government innovation agencies can become better

More items related to this subject