Do Asian real estate companies add value to investment portfolio?

Abstract

Purpose -The purpose of this paper is to examine the role of Asian real estate companies with regard to their "value-added" performance and portfolio diversification benefits in Asian mixed-asset portfolios, as well as in international real estate securities portfolios over 1996-2005. Design/methodology/approach -First the risk-return performance for all 13 Asian as well as the US and UK real estate securities markets is compared. For each country, next the correlation profiles between real estate, common stock, bonds and cash are assessed. The value-add benefits of Asian real estate securities in an unconstrained and constrained mixed asset portfolio are then assessed in relation to portfolio return, risk and terminal wealth. Finally, the paper explores whether there are benefits derived from international diversification with a universe of Asian real estate securities from the perspectives of the US and UK investors. Findings -It was found that, whilst there is little evidence of diversification benefits and superior risk-adjusted performance of Asian real estate companies in Asian mixed-asset portfolios, diversification into Asian real estate stocks can provide positive portfolio implications for international investors. Thus investing in Asian real estate securities portfolios rather than investing in Asian mixed-asset portfolios may be seen to be the more effective diversification strategy over this period. Originality/value -The study has provided some interesting and important insights into the dynamics and performance of Asian real estate securities. With an increased emphasis on international property investment and as the regional upturn becomes more evident, Asian real estate companies potentially provide an important real estate investment opportunity for international property fund mangers.

The Dynamic of Returns and Volatility of Malaysian Listed Property Companies in Asian Property Market

“…Furthermore, a study by Newell et al (2009a) revealed Malaysian property companies' Sharpe index had a negative ratio (-0.74) for the study period Q4 1998 to Q1 2007. Similar results were also found in a study by Nguyen (2011) and Liow and Adair (2009) which resulted in a Sharpe index of -0.0046 over the period January 1999 to December 2009 and -0.154 over the period 1996 to 2005. These results concur with the results from this study that showed a poor performance in terms of the Sharpe index performance compared to other asset classes.…”

“…However, analysis done by Newell et al (2009a) revealed property companies have shown less diversification potential with major Asian countries over the period Q4 1998 to Q1 2007. In contrast, a study conducted by Liow et al (2009) for the period January 1996 to December 2006 showed Malaysia having diversification potential with all countries case studied, including Australia, the UK, the USA and New Zealand. Nevertheless, both studies were conducted prior to the GFC, as such the results would be significantly different if the GFC was taken into account in the analysis.…”

“…However, a more recent study by Newell et al (2009a) revealed Malaysia as ranked at number four among pan-Asian countries, including the UK and the USA. In addition, research done by Liow and Adair (2009) showed Malaysia out-performed several mature markets, such as Singapore and Japan for listed property companies' performance over the period 1996 to 2005. Another study by Nguyen (2011) revealed almost similar findings with several countries' risk-adjusted performance, except for Malaysia, South Korea and Singapore.…”

“…There are extensive studies devoted to the Asian property markets, such as Liow and Adair (2009), Liow (2005Liow ( , 2008Liow ( , 2009, Jin et al (2007), Liow and Sim (2006), Ooi et al (2006), Wilson et al (2007), Gerlach et al (2006), Addae-Dapaah and Loh (2005), Ooi and Liow (2004), Mei and Hui (2004), Newell et al (2009aNewell et al ( , 2009b, Newell and Razali (2009), Nguyen (2011Nguyen ( , 2012 and Tsai et al (2010). Some authors, such as Ling and Naranjo (2002), observe cross-country analysis on commercial real estate returns.…”

“…The second research gap is the apparent lack of studies that have used econometric analysis such as Granger causality tests and ARCH and Generalised Autoregressive Conditional Heteroscedasticity (GARCH) models, especially to examine Liow and Adair (2009) Examined the role of Asian real estate companies with regard to their value-added performance and portfolio diversification benefits in Asian mixed-asset portfolios. Liow (2008) Investigated empirically the changes in long-term relationships and short-term linkages among the US, UK and 8 Asian real estate securities by using a combination of Johansen linear co-integration, Bierens nonlinear co-integration, Granger causality, variance decomposition and volatility spill-over methodology.…”