International Diversification with Securitized Real Estate and the Veiling Glare from Currency Risk

Felix Schindler and Tim-Alexander Kröncke
Authors registered in the RePEc Author Service: Tim A. Kroencke

VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis from Verein für Socialpolitik / German Economic Association

Abstract: This paper analyzes diversification benefits from international securitized real estate in a mixed-asset context. We apply regression-based mean-variance efficiency tests, conditional on currency-unhedged and fully hedged portfolios to account for foreign exchange risk exposure. From the perspective of a US investor, it is shown that first, international diversification is superior to a US mixed-asset portfolio, second, adding international real estate to an already internationally diversified stock and bond portfolio results in a further significant improvement of the risk-return trade-off and, third, considering unhedged international assets could lead to biased asset allocation decisions not realizing the true diversification benefits from international assets. Our in-sample results are quite robust in out-of-sample analysis and when investment frictions like short selling constraints are introduced.

Keywords: Diversification Benefits; International Mixed-Asset Portfolios; Currency Hedging; Spanning Tests; Short Selling Constraints (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2011
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https://www.econstor.eu/bitstream/10419/48705/1/VfS_2011_pid_107.pdf (application/pdf)

Related works:
Journal Article: International diversification with securitized real estate and the veiling glare from currency risk (2012)
Working Paper: International diversification with securitized real estate and the veiling glare from currency risk (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc11:48705

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