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Time-Varying Diversification Effect of Real Estate in Institutional Portfolios: When Alternative Assets Are Considered

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  • Kathy Hung
  • Zhan Onayev
  • Charles Tu

Abstract

Executive Summary.This study examines the role of direct and indirect real estate in a multiasset portfolio and the benefit of a dynamic asset allocation strategy for institutional investors. The diversification benefits of real estate are well documented in the literature. Nevertheless, as institutional investors increase their allocations to other assets, the growing competition from alternative investments motivates the reexamination of the role of real estate in institutional portfolios. The analyses reveal that: (1) after including a wide range of alternative investments, REITs add value to portfolios only in bull markets; (2) mortgage and hybrid REITs provide diversification benefits, whereas equity REITs do not; and (3) direct real estate investments enhance portfolio performance, and the effect is not time-varying.

Suggested Citation

  • Kathy Hung & Zhan Onayev & Charles Tu, 2008. "Time-Varying Diversification Effect of Real Estate in Institutional Portfolios: When Alternative Assets Are Considered," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 14(4), pages 241-262, January.
    • Handle: RePEc:taf:repmxx:v:14:y:2008:i:4:p:241-262
    DOI: 10.1080/10835547.2008.12089813
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