Portfolio Diversification Benefits Research Articles

Dynamic linkage between environmental segments of stock markets: the role of global risk factors

ABSTRACT This study evaluates the links between representative indices of companies with high environmental performance and the propensity of such indices to economic and financial shocks. Five indices, representing environmental segments and four global macroeconomic and financial variables, were analyzed over a thirteen-year period, which included various crisis moments, such as the sovereign debt crisis, the COVID-19 pandemic and the onset of the Russia/Ukraine conflict. Using dynamic and nonlinear models, our research reveals statistically significant and consistent relationships between the variables under investigation, particularly during periods of global financial and pandemic crises. The analysis revealed that the VIXCLS is the most influential global risk factor, with certain risk factors being influenced by environmental segments, particularly Alternative Energy. This influence can create conditions conducive to contagion risk and diminish the benefits of portfolio diversification. This study contributes to a deeper understanding of the connection between environmental investments and their vulnerability to significant global events and risks.

The degree of Asian-European markets connectedness: examining the impact of global disorders using a spectral analysis

Purpose This paper aims to examine potential diversification benefits between Eurozone (i.e. EURO STOXX 50) and key Asia markets: HSI (Hong Kong), KOSPI (South Korea), NIKKEI 225 (Japan) and TSEC (Taiwan). The sample covers the period from 04-01-2008 to 19-10-2023 in daily frequency. Design/methodology/approach The empirical investigation is based on the wavelet coherence analysis, which is a localized correlation coefficient in the time and frequency domain. Findings The results provide evidence that long-term diversification benefits exist between EURO STOXX and NIKKEI, EURO STOXX and KOSPI (after 2015) and there are signs for the pair and EURO STOXX-TSEC (after 2014). During the short term, there are signs of diversification benefits during the sample period. However, during the medium term, the diversification benefits seem to diminish. Originality/value These results have crucial implications for investors regarding the benefits of international portfolio diversification.

The performance of renewable energy infrastructure

PurposeRenewable energy infrastructure is an important asset class in the context of reducing global carbon emissions going forward. This includes solar power, wind farms, hydro, battery storage and hydrogen. This paper examines the risk-adjusted performance and diversification benefits of listed renewable energy infrastructure globally over Q1:2009–Q4:2022 to examine the role of renewable energy infrastructure in a global infrastructure portfolio and in a global mixed-asset portfolio. The performance of renewable energy infrastructure is compared with the other major infrastructure sectors and other major asset classes. The strategic investment implications for institutional investors and renewable energy infrastructure in their portfolios going forward are also highlighted. This includes identifying effective pathways for renewable energy infrastructure exposure by institutional investors.Design/methodology/approachUsing quarterly total returns, the risk-adjusted performance and portfolio diversification benefits of global listed renewable energy infrastructure over Q1:2009–Q4:2022 is assessed. Asset allocation diagrams are used to assess the role of renewable energy infrastructure in a global infrastructure portfolio and in a global mixed-asset portfolio.FindingsListed renewable energy infrastructure was seen to underperform the other infrastructure sectors and other major asset classes over 2009–2022. While delivering portfolio diversification benefits, no renewable energy infrastructure was seen in the optimal infrastructure portfolio or mixed-asset portfolio. More impressive performance characteristics were seen by nonlisted infrastructure funds over this period. Practical reasons for these results are provided as well as effective pathways going forward are identified for the fuller inclusion of renewable energy infrastructure in institutional investor portfolios.Practical implicationsInstitutional investors have an important role in supporting reduced global carbon emissions via their investment mandates and asset allocations. Renewable energy infrastructure will be a key asset to assist in the delivery of this important agenda for a greener economy and addressing global warming. Based on this performance analysis, effective pathways are identified for institutional investors of different size assets under management (AUM) to access renewable energy infrastructure. This will see institutional investors embracing critical investment issues as well as environmental and social issues in their investment strategies going forward.Originality/valueThis paper is the first published empirical research analysis on the performance of renewable energy infrastructure at a global level. This research enables empirically validated, more informed and practical decision-making by institutional investors in the renewable energy infrastructure space. The ultimate aim of this paper is to articulate the potential strategic role of renewable energy infrastructure as an important infrastructure sector in the institutional real asset investment space and to identify effective pathways to achieve this renewable energy infrastructure exposure, as institutional investors focus on the strategic issues in reducing global carbon emissions in the context of increased global warming.

Examining connections between the fourth industrial revolution and energy markets

We investigate the relationship between assets related to the fourth industrial revolution and alternatively dirty and clean energy markets. We examine portfolio diversification benefits and risk reduction gains based on three portfolio construction techniques. Results of static connectedness analysis indicate weak integration between the fourth industrial revolution assets and both clean and dirty energy markets with spillovers being mainly in the short term. Time-varying connectedness analysis shows that the connectedness is time-varying and responsive to external shocks Further, portfolio analysis shows that fourth industrial revolution assets are important for fixed-income portfolios that also comprise stocks and energy assets.

The risk-adjusted performance and drivers of French healthcare property

PurposeHealthcare property has become an important alternate property sector in recent years for many international institutional investors. The purpose of this paper is to assess the risk-adjusted performance, portfolio diversification benefits and performance dynamics of French healthcare property in a French property portfolio and mixed-asset portfolio over 1999–2020. French healthcare property is seen to have different performance dynamics to the traditional French property sectors of office, retail and industrial property. Drivers and risk factors for the ongoing development of the direct healthcare property sector in France are also identified, as well as the strategic property investment implications for institutional investors.Design/methodology/approachUsing annual total returns, the risk-adjusted performance, portfolio diversification benefits and performance dynamics of French direct healthcare property over 1999–2020 are assessed. Asset allocation diagrams are used to assess the role of direct healthcare property in a French property portfolio and in a French mixed-asset portfolio. The role of specific drivers for French healthcare property performance is also assessed. Robustness checks are also done to assess the potential impact of COVID-19 on the performance of French healthcare property.FindingsFrench healthcare property is shown to have different performance dynamics to the traditional French property sectors of office, retail and industrial property. French direct healthcare property delivered strong risk-adjusted returns compared to French stocks, listed healthcare and listed property over 1999–2020, only exceeded by direct property. Portfolio diversification benefits in the fuller mixed-asset portfolio context were also evident, but to a much lesser extent in a narrower property portfolio context. Importantly, this sees French direct healthcare property as strongly contributing to the French property and mixed-asset portfolios across the entire portfolio risk spectrum and validating the property industry perspective of healthcare property being low risk and providing diversification benefits in a mixed-asset portfolio. However, this was to some degree to the loss or substitution of traditional direct property exposure via this replacement effect. French direct healthcare property and listed healthcare are clearly shown to be different channels in delivering different aspects of French healthcare performance to investors. Drivers of French healthcare property performance are also shown to be both economic and healthcare-specific factors. The performance of French healthcare property is also shown to be different to that seen for healthcare property in the UK and Australia. During COVID-19, French healthcare property was able to show more resilience than French office and retail property.Practical implicationsHealthcare property is an alternate property sector that has become increasingly important in recent years. The results highlight the important role of direct healthcare property in a French property portfolio and in a French mixed-asset portfolio, with French healthcare property having different investment dynamics to the other traditional French property sectors. The strong risk-adjusted performance of French direct healthcare property compared to French stocks, listed healthcare and listed property sees French direct healthcare property contributing to the mixed-asset portfolio across the entire portfolio risk spectrum. French healthcare property’s resilience during COVID-19 was also an attractive investment feature. This is particularly important, as many institutional investors now see healthcare property as an important property sector in their overall portfolio; particularly with the ageing population dynamics in most countries and the need for effective social infrastructure. The importance of French direct healthcare property sees direct healthcare property exposure accessible to investors as an important alternate real estate sector for their portfolios going forward via both non-listed healthcare property funds and the further future establishment of more healthcare REITs to accommodate both large and small institutional investors respectively. The resilience of French healthcare property during COVID-19 is also an attractive feature for future-proofing an investor’s portfolio.Originality/valueThis paper is the first published empirical research analysis of the risk-adjusted performance, diversification benefits and performance dynamics of French direct healthcare property, and the role of direct healthcare property in a French property portfolio and in a French mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of French direct healthcare property in a portfolio; particularly where the strategic role of direct healthcare property in France is seen to be different to that in the UK and Australia via portfolio replacement effects. Clear evidence is also seen of the drivers of French healthcare property performance being strongly influenced by healthcare-specific factors, as well as economic factors.

Connectedness across meme assets and sectoral markets: Determinants and portfolio management

This study examines the dynamic connectedness and risk spillovers between meme coins, meme stocks, and sectoral markets under different investment horizons. Further, we explore the effects of global uncertainty and risk factors on patterns of dynamic connectedness as well as the benefits of portfolio diversification under different investment strategies. Empirical results indicate that the short-, medium-, and long-term connectedness among these markets are time-varying and are highly responsive to external shocks and stress periods, with the short-term spillover dominating both medium- and long-term spillovers. Furthermore, Meme stocks and coins are net receivers of shock, along with the energy, communication services, utilities, and real estate sectors, whereas other sectors are net transmitters. On the contrary, GameStop-GME becomes net shock transmitters in the medium and long run, while Shiba Inu is a net shock transmitter in the long run. We also show that Meme stocks and Meme coins have distinct features and characteristics from the sectoral markets. They are disconnected and minimally affected by the fluctuations in the sectoral market. Finally, empirical findings show that global risk factors reduce dynamic connectedness across time horizons. These results have several implications for investors, portfolio managers, and policymakers regarding investment strategies, asset allocation, and risk management.

VOLATILITY AND CONDITIONAL MARKET CORRELATIONS IN PERIODS OF CRISIS

The study analyzed co-movements and contagions in Latin American stock markets, testing the benefits of diversification in times of crisis. The period investigated was from January 2000 to December 2018, testing the correlations through Asymmetric Dynamic Conditional Correlation models. The results indicate that correlations increase in periods of crisis in all markets and sectors, thus reducing the benefits of portfolio diversification. It was also possible to observe that the increase in correlations during an internal crisis is of smaller magnitude than the increase in correlations during external crises, such as Subprime.

Russia-Ukraine war and monetary policy in Nigeria

Informed by the impact of the Russia/Ukraine war at the global level in terms of commodity shocks and surge in prices, this study examines the macroeconomic impacts of the war on the Nigerian economy and offers directions for monetary policy. In the first contribution, we construct a Russia/Ukraine war index as an improvement on the existing geopolitical index and use the index to examine the impact on firm-level stock prices, sector-level consumer prices, and individual-level consumer prices. The findings indicate that the effect of the war is inflationary, but the Nigerian stock market could offer portfolio diversification benefits for international investors. In the second contribution, we provide policy options to the monetary policy authority in Nigeria through scenario analyses from a structural model with oil price and monetary policy rate (MPR) as exogenous factors. The do-nothing scenario (maintain MPR at 18 %) appears the costliest with higher inflation forecasts than the option to raise MPR [by 100 or 150 basis points]. The option to reduce MPR [by 100 or 150 basis points] however produces lower inflation forecasts, which makes it a more plausible course of action. This suggests that inflation in Nigeria may not be totally a monetary affair that can be addressed by demand management policies alone.

Financial Integration and Variance Decomposition of Asian Stock Market: Evidence from India

Manuscript type: Research paper Research aims: International investments made in non-integrated economies provide benefits of portfolio diversification, but investment made in integrated economies may lead to oscillations due to volatility spillover. Therefore, the knowledge of market linkage of an economy is imperative for investors, as well as regulators. In this context, the present paper investigates the financial integration of the Indian stock market with China, Hong Kong, Japan, UK and USA. Design/Methodology/Approach: To examine the financial integration in the long run, closing daily indices of leading stock markets of respective countries have been analysed through the Johansen cointegration method over a period of 20 years from 2002 to 2022. The vector error correction model has been applied to examine whether market equilibrium can be restored after an infusion of shock. The short run linkage has been investigated through a causality test. Further the possibility of volatility spillover has been examined through variance decomposition and impulse response function. Research findings: The results show cointegration among the selected markets, which indicates the possibility of convergence towards market equilibrium in the long run. The stock markets of India and USA were observed to have a bidirectional causal relationship indicating lesser chances of benefits from international portfolio diversification. The results reveal the sensitivity of the Indian stock market to innovations in the UK and USA. However, no significant influence of the Hong Kong, Japanese, and Chinese stock markets has been observed on the Indian stock market. Further, the Indian stock market has a significant contribution to the volatility of other stock markets, except the Chinese stock market. Theoretical contribution/Originality: The present study is crucial owing to two prominent reasons. Firstly, the linkage between various financial markets is very dynamic and needs to be studied in the present context. Secondly, the linkage of Indian economy with other countries has increased manifolds in recent few years so it will be fruitful to analyse the linkage of Indian economy with other economies. Practitioner/Policy implications: The findings are useful to investors while designing international portfolios to reap diversification benefits. The results are fruitful for market regulatory bodies to mitigate the adverse impact of volatility spillover. Research limitation/Implications: The study can be extended to other markets, monthly data and different sub-periods

Dynamic conditional correlation between green and grey energy ETF markets using cDCC-MGARCH model

ABSTRACTUsing the cDCC form of the multivariate GARCH models (MGARCH), this paper examines the time-varying conditional correlations among green renewable, grey non-renewable, and the conventional investment strategy in the exchange-traded funds (ETFs) markets. Daily excess returns for the largest energy ETFs are used as proxies for the US energy sector over the period of 25 June 2008 to 9 May 2023. The empirical results find that the AR(1)-GARCH(1, 1)-cDCC model with t-distribution to be the best fit. The results indicate that the time-varying correlations between green and grey energy ETFs are between 0.42 and 0.55 and statistically significant at 10%, with lesser degree of persistence in green energy, while there is a high significant co-movement between the grey energy and the traditional investment strategy. This, in turn, implies that investing in green energy ETFs provides better diversification. These results provide important implications for policymakers, portfolio managers and investors on the benefits of portfolio diversification in energy markets amid the current global energy crisis.

Quantile connectedness of oil price shocks with socially responsible investments

We use a new method to disentangle various sources of oil price shocks and find how these sources are connected to major global environmental, social, and governance (ESG) equity indices under extreme market movements using daily data from October 2007 to March 2022. Our quantile-based connectedness analysis shows that return connectedness considerably amplifies with the size of the shock for both positive and negative shocks, indicating that oil shocks spread more intensely during extreme market movements. We also find that oil shocks originating from unexpected variation in demand and risk substantially contribute to the variation in the ESG returns while supply shocks have relatively little effect when estimated at the median level but the contribution of all different types of shocks remain extremely high when analyzed at the tails. Our results indicate that socially responsible investments are prone to contagion and thus offer limited portfolio diversification benefits under extreme market movements. One clear implication of our study is that investors need to carefully design their risk management and diversification strategies to account for not only the source of the oil shocks but also the magnitude of the oil shock on their green equity investments. We also show that total dynamic connectedness significantly increased during the global financial crisis, European debt crisis, the Brexit episode and the recent COVID-19 outbreak.

Do Asian Islamic Equities Offer Diversification Benefits in Cryptocurrency Portfolio in Times of Increased Uncertainty?

This study explores whether Islamic equities offer portfolio diversification benefits to cryptocurrency investors. It employs the Continuous Wavelet Transform model to examine the nature of coherence between major cryptocurrency asset classes and major Asian Islamic equity markets on different investment horizons. We consider a range of Islamic equity indices for multiple countries and a basket of three prominent cryptocurrencies: Bitcoin, Ethereum and Ripple. Findings suggest that Asian Islamic equities offer portfolio diversification opportunities. Our findings also imply that Asian Islamic equities are not efficient and are prone to short-term speculative activities.

Quantifying Portfolio Diversification Benefit via Return Indifference Curves

Quantifying Portfolio Diversification Benefit via Return Indifference Curves

Spillover of volatility among financial instruments: ASEAN-5 and GCC market study.

The research examines a comovement and spillover of volatility among foreign exchange, conventional and shariah stock markets in Association of South East Asian Nation-5 (ASEAN) countries and Gulf Cooperation Council (GCC) countries. Generalized Autoregressive Conditional Heteroskedasticity-Baba, Engle, Kraft and Kroner (GARCH-BEKK) and Dynamic Conditional Correlation (GARCH-DCC) models are used to capture the correlation and transmission volatility of the markets. The overall results show that both the Shariah and the conventional stock indices respond similarly to each country's currency. A bidirectional (two-way relationship) volatility spillover exists only in Malaysia and a unidirectional (one-way relationship) volatility is observed in Indonesia, Singapore, Thailand, and Bahrain. The rest of the markets-the Philippines, Saudi Arabia, and the United Arab Emirates (UAE)-do not have any volatility spillover evidence. Based on DCC outcomes, the conventional and Shariah stock in ASEAN-5 countries and GCC countries reveal the market efficiency, i.e., a positive high conditional correlation. Only Bahrain shows less efficiency than the other countries. It implies no portfolio diversification advantage in conventional and Shariah stock indices. Contrarily, currency and stock (conventional and Shariah) markets provide portfolio diversification benefits for all ASEAN-5 and GCC countries.

Investing in cryptocurrency before and during the COVID-19 crisis: Hedge, diversifier or safe haven?

This paper examines the safe-haven, diversification, and hedging properties of cryptocurrencies against stock market declines. We use daily data for two sub-periods: pre-Covid-19 and during Covid-19. The sample includes the stock market indices of the 10 countries most affected by the pandemic and the eight most popular cryptocurrencies based on their market capitalization over the study period. We found that Bitcoin, Cardano, Ethereum, and Binance have generated portfolio diversification benefits for investors during the Covid-19 outbreak, while Tether and the USD Coin have acted as safe-haven assets. Additionally, the findings reveal that gold has been an effective diversification tool for investors during the Covid-19 pandemic, while West Texas Intermediate (WTI) crude oil has positively impacted stock index returns. Our results are of great practical interest to academics and policymakers, as well as investors, and provide relevant information on cryptocurrency variations during times of crisis.

How prone are emerging markets' sectoral indices to global uncertainties? Evidence from the quantile connectedness approach with portfolio implications

PurposeThere has been a burgeoning interest in exploring the impact of uncertainty factors on share returns. However, studies on the influence of global financial uncertainties on emerging market sectoral indices are scarce. Thus, there is a need to have a thorough investigation of the connection between global financial uncertainties and emerging market sectoral indices. To fill this gap, using the theoretical framework of international portfolio diversification (IPD) and utilizing data from 2008 to 2021, this study examines the spillover connection between global uncertainty indices (GUIs) and leading sectoral indices of 28 emerging markets.Design/methodology/approachThe authors employ the quantile spillover-based connectedness approach and minimum connectedness portfolio approach to explore the dynamic connectedness among sectoral indices and global uncertainty indices (GUIs) as well as portfolio implication.FindingsThe study found high connectedness among all indices, especially at higher and lower quantiles. Among GUIs, the authors find that stock market volatility (VIX) and oil volatility index (OVX) are strongly interconnected with all leading emerging markets' sectoral indices. Among sectoral indices, the linkage between the financial (F-Index), information technology (IT-Index), and consumer discretionary (CD-Index) sectors shows moderate interconnectedness. In contrast, the communication services (CS-Index) sector has low interconnectedness with the system. In terms of spillover effects, the authors find EVZ, OVX, and the IT sectors to be net recipients for the entire period. The authors also explored portfolio diversification benefits by employing a minimum connectedness portfolio approach. The cumulative returns' findings show a slight decline in the portfolio's value after 2010; during 2012, the pattern remained stable; from 2014 to 2020, the portfolio performed negatively, that is, underperformance due to different events in that period, including COVID-19. The Consumer Discretionary sector is found to be significant because of having the largest weight, 51%, in the portfolio during the study period.Practical implicationsThe study suggests that investors should invest in the communication services sector as it is the least connected. However, the connectedness increases during COVID-19, which implies that it may be difficult for investors to benefit from IPD in a crisis period. Hence, to obtain the benefits from IPD, the evidence suggests that investors need to consider Consumer Discretionary sector while considering assets for investment.Originality/valueThe study's uniqueness is that the authors have investigated spillover between GUIs and 28 emerging markets sectoral indices by employing a quantile spillover-based connectedness approach and minimum connectedness portfolio approach with a special focus on portfolio implication.

Assessing Market Integration Between MINT and Developed Economies: Evidence from Dynamic Cointegration

This study examines the static and time-varying cointegration between Mexico, Indonesia, Nigeria, and Turkey (MINT), and developed stock markets in USA and Japan by applying conventional cointegration methodology and rolling multivariate trace statistics over the period of 10 years. Overall, the findings of bivariate cointegration test suggested that MINT stock markets do not have significant long running relationship with Japan stock market. Hence, the scope of diversification exists accordingly. However, rolling trace statistics revealed the time-varying nature of integration between the markets considered in the study. The varying degree of cointegration is more likely to be caused by major economic, financial, and political events. Hence, the presence of equilibrium relationship among the markets in the sub-periods may limit the potential portfolio diversification benefits. Thus, lack of consistency in the findings of the static and dynamic cointegration analysis highlights the limitation of the static assessment. On the short-term linkage, the examination of dynamic conditional correlation (DCC) for each MINT-developed market pair suggested that Indonesia exhibits least correlation with USA and Japan and hence, offering highest portfolio avenues.

Portfolio diversification benefits before and during the times of COVID-19: evidence from USA

This paper investigates the portfolio diversification benefits for Islamic and conventional investors in the USA with its major trading partners (United Kingdom, Canada, China, Japan, Malaysia, and Turkey) before and during the COVID-19 crisis period. Using daily data from 2007 to 2020, we employ three relevant time-varying and timescale-dependent techniques, the continuous wavelet transform (CWT) analysis, the wavelet multiple correlation (WMC), and the wavelet multiple cross-correlation (WMCC). The findings suggest that conventional and Islamic US investors who invest with major trading partners may reap large diversification benefits for very short investment horizons (4–8), except for Sharia Malaysia index. However, they may not reap benefits for investment horizons of 8–16 and longer, except for China. In addition, COVID-19 crisis caused a poor diversification opportunity for US investors regardless of the regime they follow (conventional or Islamic). Moreover, the American industrial market depicts a state of impending perfect market integration. Finally, the UK and Canada seem to be the potential market leaders in different wavelet scales. These findings yield important policy implications.

Low Carbon Mutual Funds

Abstract Climate change poses new challenges for portfolio management. In our not-yet-low carbon world, investors face a trade-off between minimizing their exposure to climate risks and maximizing the benefits of portfolio diversification. This article investigates how investors and financial intermediaries navigate this trade-off. After the release of Morningstar’s novel carbon risk metrics in April 2018, mutual funds labeled as “low carbon” experienced a significant increase in investor demand, especially those with high risk-adjusted returns. Fund managers actively reduced their exposure to firms with high carbon risk scores, especially stocks with returns that correlated more with the funds’ portfolios and were thus less useful for diversification. These findings shed light on whether and how climate-related information can re-orient capital flows in a low carbon direction.

The performance of non-listed opportunity real estate funds in China

PurposeOpportunity real estate funds are an important style of real estate investing for institutional investors seeking nonlisted real estate exposure. Importantly, institutional investors have sought exposure to the China real estate market, often via opportunity real estate funds. This has been by a pure China opportunity real estate fund (100% China opportunity real estate) or by a pan-Asia opportunity real estate fund where China opportunity real estate was part of this pan-Asia opportunity real estate portfolio. Using two bespoke China opportunity real estate indices developed by the authors, this paper aims to assess the risk-adjusted performance and portfolio diversification benefits of China opportunity real estate in a mixed-asset portfolio over 2008–2020. It also highlights critical issues for institutional investors going forward to factor into their real estate investment decision-making for effective China real estate exposure.Design/methodology/approachThis paper develops two bespoke China opportunity real estate fund performance indices to assess the risk-adjusted performance and portfolio diversification benefits of China opportunity real estate funds in a mixed-asset portfolio over 2008–2020. An asset allocation diagram is used to assess the role of China opportunity real estate in a mixed-asset portfolio via both the non-listed and listed real estate investment channels.FindingsOver 2008–2020, China opportunity real estate exposure via pan-Asia opportunity real estate funds were seen to outperform pure China opportunity real estate funds. In both formats, China opportunity real estate funds were seen to have a significant role in a China mixed-asset portfolio across most of the portfolio risk spectrum; particularly compared to listed real estate exposure in China. On-going issues regarding real estate risk management in China will take on increased importance for institutional investors seeking China real estate exposure.Practical implicationsOpportunity real estate funds are an important style of real estate investing, often used by institutional investors to gain non-listed real estate exposure in a developing real estate market. This style of real estate investing has been popular with institutional investors seeking exposure to China real estate as part of the China economic growth dynamic. The results of this research highlight the importance of opportunity real estate investing in China, both via a pure China opportunity real estate fund and via a pan-Asia opportunity real estate fund. Based on this empirical analysis, China opportunity real estate exposure is seen to be more effective via a pan-Asia opportunity real estate fund than a 100% China opportunity real estate fund. A range of practical China real estate investment issues are also highlighted for the effective delivery of China real estate exposure for institutional investors going forward; this particularly relates to the on-going risk management for real estate investment in China.Originality/valueThis paper is the first empirical research analysis of the risk-adjusted performance of China opportunity real estate and its role in a mixed-asset portfolio. Using bespoke China opportunity real estate fund indices developed by the authors, this research enables empirically-validated, more informed and practical opportunity real estate investment decision-making regarding the strategic role of China opportunity real estate in an institutional investor's portfolio. It also highlights the importance of various facets of real estate risk management in China going forward.