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Diversification benefit of Japanese real estate over the last four decades

Neal Maroney and Atsuyuki Naka
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Neal Maroney: University of New Orleans
Atsuyuki Naka: University of New Orleans

No 2003-01, Working Papers from University of New Orleans, Department of Economics and Finance

Abstract: This paper examines the benefits of diversifying into real estate and other assets that typify the wealth held by Japanese investors by examining movements in mean variance frontiers. We employ spanning tests to assess statistical significance of frontier shifts without specifying a benchmark asset pricing model. We also examine the impact of shifts in mean variance frontiers before and after the precipitous decline in Japanese real estate and stock market values in the 90s. Spanning tests show that real estate, short, and long-term bonds provide diversification benefits while domestic and US equities do not. Significant shifts in mean variance frontiers are detected during the 90s. Residential property as opposed to commercial and industrial properties proves to be a more robust diversifier. Statistically significant shifts are also economically significant as measured by Sharpe ratio changes. Although significant, the portfolio weights on real estate are small compared to their composition in nations’ wealth.

Keywords: Japan; Real Estate; Diversification (search for similar items in EconPapers)
JEL-codes: F21 G15 L85 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003
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