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An Analysis on the Diversification Effects of Mixed-Asset Portfolio by Incorporating REITs : Focused on before/after the International Financial Crisis

최혜림 1,  유정석 1

1단국대학교

Accredited

ABSTRACT

During the recent sub-prime mortgage crisis, real estate investors recognized that systematic risks could not be easily avoided by way of portfolio diversification due to the strong co-movements among international real estate capital markets. Therefore, this study provides re-examinations on real estate portfolio diversification effects under uncertain investment environments. To analyze the stability of diversification effects across investment horizons, rolling correlation, Granger causality, and cointegrating relations are tested to examine short- and long-run diversification effects. The main research findings of this paper are as follows. First, during the period of regime-changes it is very unlikely to expect portfolio diversification effects because risk-return tradeoffs and correlation relations among assets become unstable in the short run. Second, diversification effects are very limited during the crisis due to the higher correlations and strong spill-over effects between real estate and financial assets. Finally, after the international financial crisis, real estate and domestic capital markets performed differently. Therefore, real estate investors should consider portfolio re-balancing in a timely manner and readjust their optimal asset allocation strategies to maximize their portfolio investment performances, measured by Sharpe ratio, to reflect real estate investment environmental changes.

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