Regional Models for Portfolio Diversification

Theron Nelson and Susan Nelson

Journal of Real Estate Portfolio Management, 2003, vol. 9, issue 1, 71-88

Abstract: Executive Summary. This research is an extension of earlier efforts to develop geographic diversification strategies based upon economic factors, particularly employment-related measures. A much broader set of measures is used to search for broad macroeconomic cycles. Seven groups of states, labeled “Capacity Clusters” due to the emphasis on economic and development capacity, are identified. Although there are clear signs of geographic influence, the clusters are not at all synonymous with “pure” geographic regions of contiguous states. Utilizing NCREIF property returns data, the ability to develop well diversified portfolios based upon the capacity clusters is tested. The results suggest that superior diversification benefits may be found with the Capacity Cluster approach.

Date: 2003
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DOI: 10.1080/10835547.2003.12089673

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