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This study aims to demonstrate the benefits&nbsp;related to the inclusion of European REIT in a portfolio of stocks and bonds&nbsp;traded on European markets. Major studies of the portfolio’s diversification those considered REIT was carried out on the American real estate market. Therefore,&nbsp;this research project aims to extend the work to the European scale by forming&nbsp;a mixed pan-European REIT portfolio. The database is composed of monthly&nbsp;dividend-adjusted closing prices, over the past 11 years, from different stock&nbsp;indexes collected during eleven years of different European market indexes.&nbsp;Four hypothetic portfolios were constructed to test our hypothesis. Descriptive&nbsp;statistics and correlations were presented. Therefore, the results have shown&nbsp;that European REIT has reduced the risk of a mixed portfolio even if the risk&nbsp;reduction is very limited. The same is true for the portfolio’s return, which&nbsp;was slightly improved. The study showed that European REIT remains a factor of&nbsp;diversification that should not be overlooked in building an asset portfolio. These findings&nbsp;contribute to the existing portfolio theory arguing that using REITs in&nbsp;portfolio diversification helps investors dilute their risk and improve their returns.&nbsp;Our results also have practical implications. They can be useful to investors&nbsp;and financial analysts in their investment decisions by shedding light on this&nbsp;type of asset.

NCAF.2021.06.03.pdf

Original Research 

NCAF.2021.06.03.xml

Diversification Benefits of European REIT, Equities and Bonds

This&nbsp;study&nbsp;aims&nbsp;to&nbsp;demonstrate&nbsp;the&nbsp;benefits&nbsp;related&nbsp;to&nbsp;the&nbsp;inclusion&nbsp;of&nbsp;European&nbsp;REIT&nbsp;ina&nbsp;portfolio&nbsp;of&nbsp;stocks&nbsp;and&nbsp;bonds&nbsp;traded&nbsp;on&nbsp;European&nbsp;markets. Major&nbsp;studies&nbsp;of&nbsp;the&nbsp;portfolio’s&nbsp;diversification&nbsp;those&nbsp;considered&nbsp;REIT&nbsp;was&nbsp;carried&nbsp;out&nbsp;on&nbsp;the&nbsp;American&nbsp;real&nbsp;estate&nbsp;market. Therefore,&nbsp;this&nbsp;research&nbsp;project&nbsp;aims&nbsp;to&nbsp;extend&nbsp;the&nbsp;work&nbsp;to&nbsp;the&nbsp;European&nbsp;scale&nbsp;by&nbsp;forming&nbsp;a&nbsp;mixed&nbsp;pan‐European REIT&nbsp;portfolio. The&nbsp;database&nbsp;is&nbsp;composed&nbsp;of&nbsp;monthly&nbsp;dividend‐adjusted&nbsp;closing&nbsp;prices, over&nbsp;the&nbsp;past&nbsp;11&nbsp;years, from&nbsp;different&nbsp;stock&nbsp;indexes&nbsp;collected&nbsp;during&nbsp;eleven&nbsp;years&nbsp;of&nbsp;different&nbsp;European&nbsp;market indexes. Four&nbsp;hypothetic&nbsp;portfolios&nbsp;were&nbsp;constructed&nbsp;to&nbsp;test&nbsp;our&nbsp;hypothesis.&nbsp;Descriptive&nbsp;statistics&nbsp;and&nbsp;correlations&nbsp;were&nbsp;presented.&nbsp;Therefore,&nbsp;the&nbsp;results&nbsp;have&nbsp;shown&nbsp;that&nbsp;European&nbsp;REIT&nbsp;has&nbsp;reduced&nbsp;the&nbsp;risk&nbsp;of&nbsp;a&nbsp;mixed&nbsp;portfolio&nbsp;even&nbsp;if&nbsp;the&nbsp;risk&nbsp;reduction&nbsp;is&nbsp;very&nbsp;limited.&nbsp;The&nbsp;same&nbsp;is&nbsp;true&nbsp;for&nbsp;the&nbsp;portfolio’s&nbsp;return,&nbsp;which&nbsp;was&nbsp;slightly&nbsp;improved.&nbsp;The&nbsp;study&nbsp;showed&nbsp;that&nbsp;European&nbsp;REIT&nbsp;remains&nbsp;a&nbsp;factor&nbsp;of&nbsp;diversification&nbsp;that&nbsp;should&nbsp;not&nbsp;be&nbsp;overlooked&nbsp;in&nbsp;building&nbsp;an&nbsp;asset&nbsp;portfolio.&nbsp;These&nbsp;findings&nbsp;contribute&nbsp;to&nbsp;the&nbsp;existing&nbsp;portfolio&nbsp;theory&nbsp;arguing&nbsp;that&nbsp;using&nbsp;REITs&nbsp;in&nbsp;portfolio&nbsp;diversification&nbsp;helps&nbsp;investors&nbsp;dilute&nbsp;their&nbsp;risk&nbsp;and&nbsp;improve&nbsp;their&nbsp;returns.&nbsp;Our&nbsp;results&nbsp;also&nbsp;have&nbsp;practical&nbsp;implications.&nbsp;They&nbsp;can&nbsp;be&nbsp;useful&nbsp;to&nbsp;investors&nbsp;and&nbsp;financial&nbsp;analysts&nbsp;in&nbsp;their&nbsp;investment&nbsp;decisions&nbsp;by&nbsp;shedding&nbsp;light&nbsp;on&nbsp;this&nbsp;type&nbsp;of&nbsp;asset.