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Real Estate Diversification Benefits

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  • Dirk De Wit

Abstract

Diversification benefits are shown to vary inversely with the correlation between asset returns. The present study estimates average correlation coefficients between real-estate returns from property-specific data of an internationally diversified real estate fund in the Netherlands. It is found that diversification benefits within the United States are much larger than on the European Continent. The low correlation found between U.S. real estate returns implies that portfolios of small numbers of U.S. properties would require large return premia. Also, the study helps to explain why financial intermediaries exist in the real estate industry and when investors should consider employing them.

Suggested Citation

  • Dirk De Wit, 1997. "Real Estate Diversification Benefits," Journal of Real Estate Research, Taylor & Francis Journals, vol. 14(2), pages 117-135, January.
    • Handle: RePEc:taf:rjerxx:v:14:y:1997:i:2:p:117-135
    DOI: 10.1080/10835547.1997.12090893
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    Cited by:

    1. Helen Higgs & Andrew C. Worthington, 2002. "The Prospects for Geographic Diversification in UK Regional Property Investment: Implications Derived from Multivariate Cointegration Analysis," School of Economics and Finance Discussion Papers and Working Papers Series 111, School of Economics and Finance, Queensland University of Technology.
    2. Kim Hiang Liow & Graeme Newell, 2012. "Investment Dynamics of the Greater China Securitized Real Estate Markets," Journal of Real Estate Research, Taylor & Francis Journals, vol. 34(3), pages 399-428, January.
    3. Natalya Delcoure & Ross Dickens, 2004. "REIT and REOC Systematic Risk Sensitivity," Journal of Real Estate Research, American Real Estate Society, vol. 26(3), pages 237-254.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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