IMPACT OF ADDING SECURITISED PROPERTY INTO MIXED-ASSET PORTFOLIO IN EMERGING MARKETS: EVIDENCE FROM NIGERIA

Timothy Oluwafemi Ayodele and Abel Olaleye

AfRES from African Real Estate Society (AfRES)

Abstract: PURPOSE: The paper examined the performance of securitised property and analysed its diversification benefits when added into domestic mixed-asset portfolios, constructed using Naïve and MPT optimization techniques. The paper also tested the hypothesis that the performance of naïve portfolios with securitised properties is better than naïve portfolios without such.DESIGN/METHODS: The data comprised of quarterly returns on securitised property, all share, Federal bonds, State bonds, Debentures and Treasury bills for years 2000 to 2013. Return-risk analysis was compared using mean return, standard deviation, Sharpe ratio and correlation coefficient. The data sets were also analysed for stationarity using the Philip Perron unit root test. Furthermore, the static and time varying correlations (DCC) between LPS and other assets in the portfolio were examined. In assessing securitised property return enhancements and risk reduction benefits in mixed asset portfolio, 24 naïve portfolios (18 with securitised property and 6 without) were constructed and the effectiveness of diversification was assessed for each portfolio. This is in addition to examining the impact of securitised property on optimal portfolios using Markowitz quadratic function.FINDINGS: The results showed that securitised property did not offer superior returns and underperformed most other assets on risk adjusted basis. Furthermore, inclusion of securitised property into mixed asset portfolios might not bring statistically significant improvement in portfolios performance. The results are however dependent on the percentage weightings of assets and the asset class being replaced.PRACTICAL IMPLICATION: The study has implications for investors interested in emerging markets like the Nigerian investment market.ORIGINALITY: It is one of the few attempts within the context of Africa’s emerging market and Nigeria in particular.

Keywords: Diversification; Emerging Market; Investment; Mixed-asset Portfolio; Nigeria; securitised property (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2016-09-01
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