Abstract
AbstractThis study examines both the determinants of risk‐adjusted returns of real estate mutual funds relative to that of five categories of equity mutual funds and the systematic risk/return impacts on mutual fund portfolios when combined with real estate mutual funds. We find that there are three variables that are significant in affecting risk‐adjusted returns of real estate mutual funds: correlation with stock market returns, expense ratio and tax efficiency. Real estate funds with returns that have a greater association with stock market returns would have larger risk‐adjusted returns. Low tax efficiency and larger expense ratios would lead to reduced risk‐adjusted returns. This study provides evidence of the positive risk/return impacts of including real estate mutual funds in a portfolio of equity mutual funds. Combining real estate mutual funds into equally weighted portfolios with non‐real estate mutual funds would have increased portfolio returns while decreasing portfolio beta. Copyright © 2005 John Wiley & Sons, Ltd.
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