PERFORMANCE OF ASIAN REAL ESTATE SECURITIES AS AN ALTERNATIVE ASSET IN INTERNATIONAL MIXED ASSET PORTFOLIO

Abstract

This paper quantitatively assesses the performance of Asian real estate securities as a global alternative asset in international mixed asset portfolios including securitized alternative asset portfolios over the period of December 2003 to November 2010. Asian real estate securities in this paper encompass both REIT and property stock from eight Asian markets to make an approach to broad securitized real estate in Asia from the perspective of Non-Asian investors based in the US market. Both traditional investment assets that are cash, bond and stock in Asia and US contexts and alternative assets that are global listed private equity and US real estate securities are compared to evaluate the performance of Asian real estate securities, using Mean-Variance Model, Capital Asset Pricing Model, Correlation Analysis and Efficient Frontier.

In terms of assets, markets and time horizon variations, the following results are shown: • Asian real estate securities show superior return and risk-adjusted return performance to US stock asset and low correlation to US traditional assets • Asian real estate securities in general show superior return and risk-adjusted return performance and low correlation to global listed private equity, and • The longer time horizon is the more diversifying effect has, which is based on the lower correlation among alternative assets

With feasible construction of eighteen constrained variance portfolios, this empirical study shows the following findings when Asian real estate securities are included: • Risk-adjusted return benefits are shown in international mixed asset portfolios, in which the range of optimal allocations is 77.69% to 80.31% in the US traditional assets and 19.69% to 22.31% in alternative assets, • The performance of alternative asset portfolios is remarkably enhanced based on superior return opportunities and on diversification effects from low correlation to selected alternative assets, and • Real estate securities of Asian developed market among the classified Asian markets are shown to yield the most superior portfolio performance in securitized real estate portfolios and alternative asset portfolios that include global listed private equity

This study is expected to enhance the new perspective of potential roles of Asian real estate securities that give the multiple effects to international portfolios.

Key words: Asian real estate securities, global listed private equity, international mixed asset portfolio, alternative asset portfolio, correlation and optimal portfolio