The Long-Run Diversification Attributes of Commercial Property

W.D. Fraser, C. Leishman, H. Tarbert

Research output: Contribution to journalArticle

Abstract

Correlation coefficients measuring the historical relationships of returns on commercial property and both equities and conventional gilts appear to be low. Conversely, the correlation between gilts and equities appears to be relatively high. This implies that property provides diversification benefits to a mixed asset portfolio dominated by equities and gilts. However, there is some debate as to the reliability of these correlations and property’s diversification benefits. In this paper we use Granger causality tests and cointegration techniques to demonstrate that there is no long‐run relationship between property returns and those of either gilts or equities. This confirms the diversification benefits of including property in a mixed asset portfolio.
Original languageEnglish
Pages (from-to)354-373
Number of pages20
JournalJournal of Property Investment and Finance
Volume20
Issue number4
DOIs
Publication statusPublished - 2002
Externally publishedYes

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Equity
Diversification
Diversification benefits
Assets
Cointegration
Granger causality test
Correlation coefficient

Keywords

  • Diversification
  • Cointegration
  • Commercial Property

Cite this

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The Long-Run Diversification Attributes of Commercial Property. / Fraser, W.D.; Leishman, C.; Tarbert, H.

In: Journal of Property Investment and Finance, Vol. 20, No. 4, 2002, p. 354-373.

Research output: Contribution to journalArticle

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AU - Leishman, C.

AU - Tarbert, H.

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AB - Correlation coefficients measuring the historical relationships of returns on commercial property and both equities and conventional gilts appear to be low. Conversely, the correlation between gilts and equities appears to be relatively high. This implies that property provides diversification benefits to a mixed asset portfolio dominated by equities and gilts. However, there is some debate as to the reliability of these correlations and property’s diversification benefits. In this paper we use Granger causality tests and cointegration techniques to demonstrate that there is no long‐run relationship between property returns and those of either gilts or equities. This confirms the diversification benefits of including property in a mixed asset portfolio.

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