THE INFLUENCE OF REAL ESTATE DATA TRANSPARENCY ON REAL ESTATE’S WEIGHT IN A MIXED ASSET PORTFOLIO

Abstract

In the increasingly volatile environment we live in today, investors have turned to the inclusion of real estate for stability in their portfolios. Real estate data transparency is therefore essential in the decision-making process of these investors and occupiers. This dissertation attempts to quantitatively assess how international real estate’s weight in a mixed-asset portfolio of a typical US investor has changed over the period of 2004 to 2020, and whether this change could have been influenced by the level of real estate data transparency in selected countries. International real estate in this paper encompasses real residential properties globally from countries that are currently included in the Global Real Estate Transparency Index. Utilizing Markowitz’s Modern Portfolio Theory to perform a Mean-Variance analysis, efficient portfolios are formed to obtain the real estate allocation using 3-year returns. Thereafter, the real estate allocations are plotted against the changes in real estate data transparency rankings of the respective countries to determine the extent of influence real estate data transparency has on real estate weight. The empirical results found that: 1) Real estate markets with negative correlation to at least 2 other US traditional assets have efficient portfolios allocating at least 10% to real estate. 2) Overall, real estate allocation in a mixed asset portfolio have increased over the past 17 years. Allocation of European and Asian real estate is shown to have substantially increased from 2014 onwards. 3) There is no clear relationship between real estate data transparency and real estate allocation.