Do Asian real estate companies add value to investment portfolio?

Abstract

PurposeThe purpose of this paper is to examine the role of Asian real estate companies with regard to their “value‐added” performance and portfolio diversification benefits in Asian mixed‐asset portfolios, as well as in international real estate securities portfolios over 1996‐2005.Design/methodology/approachFirst the risk‐return performance for all 13 Asian as well as the US and UK real estate securities markets is compared. For each country, next the correlation profiles between real estate, common stock, bonds and cash are assessed. The value‐add benefits of Asian real estate securities in an unconstrained and constrained mixed asset portfolio are then assessed in relation to portfolio return, risk and terminal wealth. Finally, the paper explores whether there are benefits derived from international diversification with a universe of Asian real estate securities from the perspectives of the US and UK investors.FindingsIt was found that, whilst there is little evidence of diversification benefits and superior risk‐adjusted performance of Asian real estate companies in Asian mixed‐asset portfolios, diversification into Asian real estate stocks can provide positive portfolio implications for international investors. Thus investing in Asian real estate securities portfolios rather than investing in Asian mixed‐asset portfolios may be seen to be the more effective diversification strategy over this period.Originality/valueThe study has provided some interesting and important insights into the dynamics and performance of Asian real estate securities. With an increased emphasis on international property investment and as the regional upturn becomes more evident, Asian real estate companies potentially provide an important real estate investment opportunity for international property fund mangers.