INTERNATIONAL DIVERSIFICATION: REAL ESTATE VERSUS STOCKS AND BONDS

Abstract

This study investigates the performance of internationally diversified real estate portfolios relative to internationally diversified common stock and bond portfolios in the Asia-Pacific region to ascertain their relative superiority. After a review of the relevant literature, a case study of ten countries in the Asia-Pacific region is carried out. The countries include Australia, China, Hong Kong, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore and Thailand. Results show that real estate markets (both smoothed and unsmoothed) are the safest among the three asset markets, as measured by coefficient of variations. Furthermore, international real estate returns had very low correlation or were negatively correlated as compared to common stocks and bonds. Efficient frontiers for both smoothed and unsmoothed property returns dominate common stocks and bonds, implying that real estate portfolios are superior to stock and bond portfolios.