The Return due to Diversification of Real Estate to the US Mixed-Asset Portfolio

Stephen Lee
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Stephen Lee: Department of Real Estate & Planning, University of Reading School of Business

Real Estate & Planning Working Papers from Henley Business School, University of Reading

Abstract: Booth and Fama (1992) observe that the compound return and so the terminal wealth of a portfolio is greater than the weighted average of the compound returns of the individual investments, a difference referred to as the return due to diversification (RDD). Thus assets that offer high RDD should be particularly attractive investments. This paper test the proposition that US direct real estate is such an asset class using annual data over the period 1951-2001. The results show that adding real estate to an existing mixed-asset portfolio increases the compound return and so the terminal wealth of the fund. However, the results are dependent on the percentage allocation to real estate and the asset class replaced.

Keywords: real estate; compound return; return due to diversification (search for similar items in EconPapers)
Pages: 12 pages
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:repxwp:rep-wp2003-11

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