Jay Sa-Aadu and Ashish Tiwari, finance professors in the Tippie College of Business, and Jim Shilling, a finance professor at DePaul University, analyzed the performance of diversified investment portfolios that included domestic and international stocks, real estate, commodities and precious metals between 1972 and December 2008. That period, they note, includes the 2006 real estate meltdown and the first year of the recession that began in 2007.
Yet, despite the poor performance of real estate recently, those portfolios that included investments in real estate investment trusts (REIT) performed better than those that did not.
"In a long-term investment strategy, our research suggests that real estate provides stability to a portfolio during bad times," said Sa-Aadu.
In their study, Sa-Aadu and Tiwari started with a portfolio that was made up of large and medium cap stocks and Treasury bonds, then added various other asset classes to see how they affected performance over time from 1972 through December 2008. They found that the addition of REITs, corporate bonds, small cap stocks, international stocks and commodities and precious metals resulted in significant diversification gains. However, the various asset classes differed in important respects in terms of the timeliness of the gains.
A key result of the research is that the benefit of real estate and commodities and precious metals is most pronounced during a poor economy. Even when real estate does poorly, they said, it does less poorly than other asset classes, providing the portfolio stability.
"We found that real estate and commodities and precious metals are the two asset classes the deliver portfolio gains when consumption growth is low or volatile, when investors really care for such benefits," said Sa-Aadu and Tiwari in their paper, "On the Portfolio Properties of Real Estate in Good Times and Bad Times." The paper is forthcoming in the journal Real Estate Economics.
They said their findings on the performance of real estate in good economic times and bad suggest that the typical institutional allocation to real estate may be underweighted.
Their research suggests that during their study period, the optimal portfolio during good economic times would hold mostly domestic stocks (34 percent), with international stocks (25 percent), government bonds (22 percent) and real estate (15 percent) also included.
In contrast, an optimal portfolio during poor economic times would be mostly government bonds (53 percent), and also include precious metals (28 percent) and real estate (19 percent).
Sa-Aadu and Tiwari note that most institutional investors hold only 4 to 7 percent of their portfolios in real estate. Since a significant investment in real estate appeared in both of their optimal portfolios, they suggest that institutional investors consider increasing their real estate allocation for more stable portfolios long-term in both good and bad times.
They also said their study pertains to a long-term investment horizon in portfolios holding REITs, which invest mostly in multi-family housing and commercial property. It does not apply to a speculative investment strategy of purchasing single-family homes and selling them quickly.
Ashish Tiwari, 319-353-2185, email@example.com
Tom Snee | Newswise Science News
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik
Physicists from the University of Würzburg are capable of generating identical looking single light particles at the push of a button. Two new studies now demonstrate the potential this method holds.
The quantum computer has fuelled the imagination of scientists for decades: It is based on fundamentally different phenomena than a conventional computer....
An international team of physicists has monitored the scattering behaviour of electrons in a non-conducting material in real-time. Their insights could be beneficial for radiotherapy.
We can refer to electrons in non-conducting materials as ‘sluggish’. Typically, they remain fixed in a location, deep inside an atomic composite. It is hence...
Two-dimensional magnetic structures are regarded as a promising material for new types of data storage, since the magnetic properties of individual molecular building blocks can be investigated and modified. For the first time, researchers have now produced a wafer-thin ferrimagnet, in which molecules with different magnetic centers arrange themselves on a gold surface to form a checkerboard pattern. Scientists at the Swiss Nanoscience Institute at the University of Basel and the Paul Scherrer Institute published their findings in the journal Nature Communications.
Ferrimagnets are composed of two centers which are magnetized at different strengths and point in opposing directions. Two-dimensional, quasi-flat ferrimagnets...
An Australian-Chinese research team has created the world's thinnest hologram, paving the way towards the integration of 3D holography into everyday...
In the race to produce a quantum computer, a number of projects are seeking a way to create quantum bits -- or qubits -- that are stable, meaning they are not much affected by changes in their environment. This normally needs highly nonlinear non-dissipative elements capable of functioning at very low temperatures.
In pursuit of this goal, researchers at EPFL's Laboratory of Photonics and Quantum Measurements LPQM (STI/SB), have investigated a nonlinear graphene-based...
24.05.2017 | Event News
23.05.2017 | Event News
22.05.2017 | Event News
24.05.2017 | Physics and Astronomy
24.05.2017 | Physics and Astronomy
24.05.2017 | Event News