Diversification with Real Estate Stocks

W. Brent Lindquist, Svetlozar T. Rachev, Yuan Hu and Abootaleb Shirvani
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W. Brent Lindquist: Texas Tech University
Svetlozar T. Rachev: Texas Tech University
Yuan Hu: University of California San Diego
Abootaleb Shirvani: Kean University

Chapter Chapter 9 in Advanced REIT Portfolio Optimization, 2022, pp 131-136 from Springer

Abstract: Abstract Performance of optimized REIT portfolios under diversification via the addition of real estate stocks is considered in this chapter. Under both historical and dynamic optimization, adding the stocks significantly improves the price performance of minimum risk portfolios by reducing the value-at-risk of the portfolios. The reverse holds for the tangent portfolio optimizations, under which adding the stocks dramatically worsens the value-at-risk and consequently the price performance. The reward-to-risk performance measures of the diversified portfolios are compared to the undiversified counterparts. The results of diversification vary with the performance measure but are again generally better for the minimum risk portfolios than for tangent portfolios.

Date: 2022
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DOI: 10.1007/978-3-031-15286-3_9

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