Is Real Estate a Good Way to Diversify in Times of Financial Crisis?

13 Pages Posted: 22 Aug 2011 Last revised: 26 Nov 2012

See all articles by Stephane Dubreuille

Stephane Dubreuille

Reims Management School (RMS)

Stephane Fourneaux

Reims Management School (RMS)

Sebastien Lleo

NEOMA Business School

Date Written: August 22, 2011

Abstract

This paper investigates the diversification benefits of indirect real estate investments in market downturns. We model the dependence structure between REITs and traditional assets by using a mixed-copula framework within a regime switching model. The Clayton copula dominates in the mixture. We showed that correlations increase during periods of high volatility and market stress. Indirect real estate investments do not provide an adequate level of downside protection and tend to increase the portfolio risk during times of crisis.

Keywords: real estate, equity market, regime switching models, hidden Markov chains, Copulas

JEL Classification: C14, G11

Suggested Citation

Dubreuille, Stephane and Fourneaux, Stephane and Lleo, Sebastien, Is Real Estate a Good Way to Diversify in Times of Financial Crisis? (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1914240 or http://dx.doi.org/10.2139/ssrn.1914240

Stephane Dubreuille (Contact Author)

Reims Management School (RMS) ( email )

Reims
France

Stephane Fourneaux

Reims Management School (RMS) ( email )

Reims
France

Sebastien Lleo

NEOMA Business School ( email )

Reims
France

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