AbstractThe
question as to whether it is better to diversify a real estate portfolio
within a property type across the regions or within a region across the
property types is one of continuing interest for academics and practitioners
alike. The current study, however, is somewhat different from the
usual sector/regional analysis taking account of the fact that holdings
in the UK real estate market are heavily concentrated in a single region,
London. As a result this study is designed to investigate whether
a real estate fund manager can obtain a statistically significant improvement
in risk/return performance from extending out of a London based portfolio
into firstly the rest of the South East of England and then into the remainder
of the UK, or whether the manger would be better off staying within London
and diversifying across the various property types. The results indicating
that staying within London and diversifying across the various property
types may offer performance comparable with regional diversification, although
this conclusion largely depends on the time period and the fund manager’s
ability to diversify efficiently.
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