Premium
The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences
Author(s) -
Liu Crocker H.,
Mei Jianping
Publication year - 1998
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00736
Subject(s) - diversification (marketing strategy) , predictability , real estate , economics , financial economics , currency , capitalization rate , exchange rate , monetary economics , foreign exchange risk , real estate investment trust , business , econometrics , finance , physics , quantum mechanics , marketing
International real estate related securities are investigated to see whether they offer any incremental diversification benefits over foreign stocks using mean‐variance analysis together with a multifactor latent variable model. Diversification benefits are found to be primarily driven by unanticipated returns which are partially driven by changes in exchange rate risk. Although exchange rate risk accounts for a larger portion of the return fluctuation in real estate related securities relative to common stocks, international real estate securities provide some incremental diversification benefits over common stocks even if currency risks are hedged.