International diversification with securitized real estate and the veiling glare from currency risk

Tim Kroencke and Felix Schindler

Journal of International Money and Finance, 2012, vol. 31, issue 7, 1851-1866

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 systematic foreign exchange movements. 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.

Keywords: Diversification benefits; International mixed-asset portfolios; International real estate; Currency hedging; Spanning tests; Out-of-sample tests (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: International Diversification with Securitized Real Estate and the Veiling Glare from Currency Risk (2011)
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:eee:jimfin:v:31:y:2012:i:7:p:1851-1866

DOI: 10.1016/j.jimonfin.2012.05.018

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