The Inter-Temporal Stability of Real Estate Returns: An Empirical Investigation.
Abstract
This paper examines one of the central issues in the formulation of
a sector/regional real estate portfolio strategy, i.e. whether the means,
standard deviations and correlations between the returns are sufficiently
stable over time to justify using ex-post measures as proxies of
the ex-ante portfolio inputs required for MPT. To investigate these
issues this study conducts a number of tests of the inter-temporal stability
of the total returns of the 19 sector/regions in the UK of the IPDMI. The
results of the analysis reveal that the theoretical gains in sector and
or regional diversification, found in previous work, could not have been
readily achieved in practice without almost perfect foresight on the part
of an investor as means, standard deviations and correlations, varied markedly
from period to period.
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