Real estate's role in an international multi-asset portfolio: empirical evidence using Irish data

Abstract

This paper re-examines the issue of property's role in a mixed asset portfolio. Using Irish data it expands on the existing literature by extending the universe of assets to include international equity and fixed income markets. The results show that property maintains a reasonably high allocation in a mixed asset portfolio. However, when the property returns are adjusted for smoothing, the asset fails to enter any of the optimal portfolios. Further tests are conducted examining the impact of imposing constraints on the allocations. Minimum allocations are imposed on Irish equities and bonds, whilst international assets have maximum allocations put in place. The results show that property's role is increased, due to the increased attractiveness of it's risk reduction qualities.