Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/213187
Title: THE ROLE OF REITS IN A DOWNSIDE RISK ASSET ALLOCATION FRAMEWORK
Authors: LING SZE CHI
Keywords: Return
Downside risk
Diversification potential
Correlation
Asset allocation
Issue Date: 2003
Citation: LING SZE CHI (2003). THE ROLE OF REITS IN A DOWNSIDE RISK ASSET ALLOCATION FRAMEWORK. ScholarBank@NUS Repository.
Abstract: Modern portfolio theory assumes that diversification reduces risk. Along with this theory, the adage of "not putting all your eggs in one basket" has also gained credence with most investors. Thus, the introduction of Real Estate Investment Trusts (REITs) in Singapore makes it pertinent to consider the risk and return characteristics of local REITs, and question if they would provide diversification benefits to institutional investors with mixed asset portfolios. Since REITs are most often categorized by property type of its holdings, it seems logical to question what the differences in performance characteristics are, and consequently inquire which type of REIT would offer the most diversification benefit. Given the limitations in the Markowitz meanvariance optimization process, the study also aims to analyze the differences, if any, in optimized portfolios when downside risk models are used. The results from the study indicate a promising potential for REITs in Singapore. Hypothetical Property Trusts (HPTs) constructed with Australian parameters were able to outperform local stocks on a risk-adjusted basis in the study. All HPT sectors displayed low correlations with stocks and bonds. In addition, office and industrial HPTs exhibited higher risk-adjusted returns and lower correlation coefficients when compared to the retail and diversified HPTs. These indicate that the diversification strategies by property type of REITs yielded benefits to investors. Lastly, results indicate that a downside-risk adverse investor would prefer the downside optimal portfolio to the mean-variance portfolio as the former entails less risk at each level of return.
URI: https://scholarbank.nus.edu.sg/handle/10635/213187
Appears in Collections:Bachelor's Theses

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