REIT Performance and Dynamic Portfolio Considerations

DOI

10.2991/itoec-15.2015.38How to use a DOI?

Keywords

REIT; dynamic portfolio; sharpe ratio; DCC-MGARCH; differential model

Abstract

Real Estate Investment Trusts (REITs) play an important role in portfolio theory. Conventional portfolio theories assume the constant correlation coefficient, but in reality this correlation is dynamic and conditional. Portfolios could be improved by making timely adjustments to reduce losses in the presence of systemic market risk. This empirical analysis used descriptive statistics, Kernel density estimation and two Sharpe Ratios with different benchmarks to analyze the assets considered. The Sharpe Ratio with a risk-free interest rate indicates that Equity REITs are preferable to stock and direct real estate investments, as do the other statistics. We then employed a DCC-MGARCH model to estimate dynamic volatility and correlations. During the financial crisis, the conditional volatility and correlations rise, and hence portfolio risk increases. In addition, the differential model was refined using the Sequential Elimination of Regressors approach to explore the economic determinants of volatility and correlations. This work demonstrates that Equity REITs, and not all types of REITs, are competitive in the long term. The profit distribution exhibits negative skewness and asymmetry. We find that portfolio performance can be improved by adding Equity REITs, and systemic risk can be reduced by accounting for economic conditions.

Copyright

© 2015, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Keyu Feng
AU  - Yan Yan
AU  - Quanbao Li
PY  - 2015/03
DA  - 2015/03
TI  - REIT Performance and Dynamic Portfolio Considerations
BT  - Proceedings of the 2015 Information Technology and Mechatronics Engineering Conference
PB  - Atlantis Press
SP  - 178
EP  - 185
SN  - 2352-538X
UR  - https://doi.org/10.2991/itoec-15.2015.38
DO  - 10.2991/itoec-15.2015.38
ID  - Feng2015/03
ER  -