Abstract
Executive Summary. As international investing becomes more and more popular, studies of mixed-asset portfolios can no longer ignore foreign securities. This study investigates the role of U.S. commercial real estate in mixed-asset portfolios consisting of U.S. common stocks, U.S. bonds and international common equity. Historically, real estate performance has been measured by appraisal-based indices, such as the Russell-NCREIF index. It is well known that these indices suffer from appraisal-smoothing and seasonality problems. Therefore, using the Russell-NCREIF index, for example, in asset allocation decisions might be incorrect because the estimated correlations of real estate with other assets and the estimated volatility of real estate tend to be biased. A hedged equity REIT index, which reflects the returns of equity REITs after the effects of the general stock market are removed from REIT returns, is used in this study to proxy the performance of commercial real estate. The results indicate that inve...
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