Abstract
This paper investigates the diversification benefits of indirect real estate investments in market downturns. We model the dependence structure between REITs and traditional assets by using a mixed-copula framework within a regime switching model. The Clayton copula dominates in the mixture. We showed that correlations increase during periods of high volatility and market stress. Indirect real estate investments do not provide an adequate level of downside protection and tend to increase the portfolio risk during times of crisis.
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