Swiss real estate: Return, risk, and diversification opportunities

Abstract

Summary Financial and real estate markets have become increasingly international in recent years. Today, portfolio managers wishing to hold well‐diversified portfolios must invest globally, i.e. not only consider different classes of assets in their own country but also foreign assets. These foreign assets should include stocks, bonds, and real estate. However, in order to make informed decisions, investors need data on the risk and return characteristics of the various asset classes. Whereas data on financial assets are widely available, measuring the risk and return on real estate is a more complex issue mainly due to the infrequent trading of real property. Besides the measurement of the return and risk of real estate, it is of interest to analyse how this asset class fits into a portfolio of stocks and bonds. Numerous studies have demonstrated the positive impact of including real estate in American mixed‐asset portfolios (see, for example, Fogler (1984) and Webb, Curcio and Rubens (1988)). Most of th...