Housing Portfolio Risk Reduction through High-Tech Industry Diversification

Wensheng Kang

Journal of Real Estate Portfolio Management, 2009, vol. 15, issue 2, 157-171

Abstract: Executive Summary. This paper examines the gain of housing portfolio efficiency obtainable through a mixed portfolio by combining geographic characteristics and high-tech industry activities across 40 metropolitan areas. A Bayesian stochastic search is conducted for model restriction selection to compute the efficient covariance matrix of the high-dimensional panel-data model. Quadratic programming of Fortran/IMSL subroutines is applied to simulate the risk-return efficient frontier of various diversification strategies. The evidence shows that the mixed diversification strategy outperforms the geography-based strategy. The gain is superior and can reach as high as 50% in relative risk reduction during high-tech cycle growth periods.

Date: 2009
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DOI: 10.1080/10835547.2009.12089844

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