Diversification When It Hurts? The Joint Distributions of Real Estate and Equity Markets

John Knight, Colin Lizieri and Stephen Satchell

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

Abstract: Much of the literature on the construction of mixed asset portfolios and the case for property as a risk diversifier rests on correlations measured over the whole of a given time series. Recent developments in finance, however, focuses on dependence in the tails of the distribution. Does property offer diversification from equity markets when it is most needed - when equity returns are poor. The paper uses an empirical copula approach to test tail dependence between property and equity for the UK and for a global portfolio. Results show strong tail dependence: in the UK, the dependence in the lower tail is stronger than in the upper tail, casting doubt on the defensive properties of real estate stocks.

Keywords: Copula; Portfolio Diversification; Real Estate; Tail Dependence (search for similar items in EconPapers)
Pages: 20 pages
Date: 2005
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Citations: View citations in EconPapers (32)

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