Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Research Finds That Even After the Bubble, Real Estate Remains Part of a Strong Portfolio

10.12.2009
Home prices have been in a funk since 2006, but a new study by University of Iowa researchers shows that real estate is still an important part of a diversified and stable long-term investment portfolio, even after the bubble burst.

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, ashish-tiwari@uiowa.edu

Tom Snee | Newswise Science News
Further information:
http://www.uiowa.edu

More articles from Business and Finance:

nachricht Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik

nachricht Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Giant Magnetic Fields in the Universe

Astronomers from Bonn and Tautenburg in Thuringia (Germany) used the 100-m radio telescope at Effelsberg to observe several galaxy clusters. At the edges of these large accumulations of dark matter, stellar systems (galaxies), hot gas, and charged particles, they found magnetic fields that are exceptionally ordered over distances of many million light years. This makes them the most extended magnetic fields in the universe known so far.

The results will be published on March 22 in the journal „Astronomy & Astrophysics“.

Galaxy clusters are the largest gravitationally bound structures in the universe. With a typical extent of about 10 million light years, i.e. 100 times the...

Im Focus: Tracing down linear ubiquitination

Researchers at the Goethe University Frankfurt, together with partners from the University of Tübingen in Germany and Queen Mary University as well as Francis Crick Institute from London (UK) have developed a novel technology to decipher the secret ubiquitin code.

Ubiquitin is a small protein that can be linked to other cellular proteins, thereby controlling and modulating their functions. The attachment occurs in many...

Im Focus: Perovskite edges can be tuned for optoelectronic performance

Layered 2D material improves efficiency for solar cells and LEDs

In the eternal search for next generation high-efficiency solar cells and LEDs, scientists at Los Alamos National Laboratory and their partners are creating...

Im Focus: Polymer-coated silicon nanosheets as alternative to graphene: A perfect team for nanoelectronics

Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are less stable. Now researchers at the Technical University of Munich (TUM) have, for the first time ever, produced a composite material combining silicon nanosheets and a polymer that is both UV-resistant and easy to process. This brings the scientists a significant step closer to industrial applications like flexible displays and photosensors.

Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are...

Im Focus: Researchers Imitate Molecular Crowding in Cells

Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to simulate these confined natural conditions in artificial vesicles for the first time. As reported in the academic journal Small, the results are offering better insight into the development of nanoreactors and artificial organelles.

Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

International Land Use Symposium ILUS 2017: Call for Abstracts and Registration open

20.03.2017 | Event News

CONNECT 2017: International congress on connective tissue

14.03.2017 | Event News

ICTM Conference: Turbine Construction between Big Data and Additive Manufacturing

07.03.2017 | Event News

 
Latest News

Northern oceans pumped CO2 into the atmosphere

27.03.2017 | Earth Sciences

Fingerprint' technique spots frog populations at risk from pollution

27.03.2017 | Life Sciences

Big data approach to predict protein structure

27.03.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>