The role of Singapore REITs in a downside risk asset allocation framework

Abstract

Based on the historical relationships between the returns of stocks, bonds and a sample of twenty-two Listed Property Trusts (LPTs) in Australia, this study simulates ex-post returns for Hypothetical Property Trusts (HPTs) over a sample period from March 1995 to March 2002. By substituting the inputs with Singapore stock and bond returns, three sector-specific HPTs and one diversified HPT were constructed. The results show that all four HPTs have outperformed local stocks and bonds over the sample periods. The low correlations of office HPTs and industrial HPTs with stocks suggest that these HPTs could diversify the idiosyncratic risks of a mixed-asset portfolio consisting of stocks and government bonds and push the efficient frontier outward.