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THE RISK AND RETURN PROFILE OF ASIAN

THE RISK AND RETURN PROFILE OF ASIAN - THE RISK AND RETURN...

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Pacific Rim Property Research Journal, Vol 12, No 3 283 THE RISK AND RETURN PROFILE OF ASIAN REAL ESTATE STOCKS KIM HIANG LIOW and MONG CHUAN SIM National University of Singapore ABSTRACT This research examines the risk and return profile of Asian real estate stocks from an American investor’s point of view. Our results indicate that Asian real estate security markets have not produced high levels of compound returns relative to the US REIT and UK real estate stock markets since the 90’s. They have also experienced a higher level of volatility compared to their USA and UK counterparts. Asset allocations using mean- variance optimization are difficult to carry out, as many of the Asian property stock markets are not normally distributed. In addition, Asian real estate stocks have been able to provide diversification benefits in international investing that includes the US and UK security portfolios. However, the case for separate allocations to international real estate is weakened by the high correlations that are found in Asian markets between the real estate stock and broader market indexes. Keywords : Asian real estate stocks, market indexes, risk, return, normality, diversification INTRODUCTION Listed real estate companies have become an increasingly important investment vehicle in Asia and internationally (Steinert and Crowe, 2001; Bond et al, 2003), particularly through the success of real estate investment trusts (REITs) in the USA, listed property trusts (LPTs) in Australia, the recent establishment of equivalent vehicles in Japan, Korea, Malaysia, Singapore and Hong Kong and the long-established track record of listed real estate companies in Asia and Europe. With increased allocation of US pension funds to global investments and an expansion in global market capitalization represented by Asian markets, as well as specific events such as the Asian financial crisis and the rise of China as a new economic giant, considerable attention has been given to various aspects of real estate company performance in Asia (Garvey et al , 2001). However, adverse economic conditions have resulted in negative returns for the Asian listed real estate in the late 1990’s, leaving international investors to question whether Asian real estate offers investment benefits through superior rates of return and enhance diversification.
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284 Pacific Rim Property Research Journal, Vol 12, No 3 Whilst much of the previous Asian real estate company research has focused on performance analysis and the inter-relationship between the indirect and direct real estate markets in specific countries 1 , few studies have systematically examined the risk and return characteristics of Asian real estate stocks since the 1990’s. Given the increasing interest of global real estate funds and US investors in overseas opportunities, this research contributes to and complements previous research by investigating the risk-return behavior and diversification potential of 10 Asian real estate stock indexes over the period 1990-2003. A range of investment issues is examined including the mean return, risk and
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