The long-run diversification benefits available from investing across geographical regions and property type

evidence from cointegration tests

Research output: Contribution to journalArticle

Abstract

Previous studies of the mechanics of constructing a well-diversified property portfolio, where property is differentiated by sectoral or spatial dimensions, have concentrated on the correlations between returns of different types or regions. The correlation coefficients generated by such studies have shown evidence of instability, with differing results dependant on the time span, frequency, or type of data used. Nevertheless, the general consensus is that effective diversification can be achieved by investing across either or both regions and type. However, if property markets have a long-run tendency to trend together then the apparent diversification gains available by diversifying across types or regions may be exaggerated. This paper utilises cointegration techniques to provide an insight into diversification possibilities over the long run.
Original languageEnglish
Pages (from-to)49-65
Number of pages17
JournalEconomic Modelling
Volume15
Issue number1
DOIs
Publication statusPublished - 1 Jan 1998
Externally publishedYes

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Diversification benefits
Diversification
Cointegration test
Investing
Property market
Cointegration
Correlation coefficient

Keywords

  • UK commercial property
  • Diversification
  • Cointegration

Cite this

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title = "The long-run diversification benefits available from investing across geographical regions and property type: evidence from cointegration tests",
abstract = "Previous studies of the mechanics of constructing a well-diversified property portfolio, where property is differentiated by sectoral or spatial dimensions, have concentrated on the correlations between returns of different types or regions. The correlation coefficients generated by such studies have shown evidence of instability, with differing results dependant on the time span, frequency, or type of data used. Nevertheless, the general consensus is that effective diversification can be achieved by investing across either or both regions and type. However, if property markets have a long-run tendency to trend together then the apparent diversification gains available by diversifying across types or regions may be exaggerated. This paper utilises cointegration techniques to provide an insight into diversification possibilities over the long run.",
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