Equities or real estate? : an international evaluation of listed property markets

Purpose: The purpose of the paper is to examine the role of securitised real estate within the confines of a multi-asset investment portfolio and to identify if indeed securitised real estate can afford investors the desired investment benefits of direct property investment whilst mitigating many of the recognised barriers and risks. Design/methodology/approach: The paper employs a suite of analytical techniques; lead-lag correlations are utilised to examine market dynamics between listed and direct real estate markets across jurisdictions. Grainger causality and co-integration techniques are applied to examine the nature and extent of relationships between investment markets with optimal portfolio analysis utilised to explore the role of securitised real estate and the optimum weighting allocation within the confines of a multi-asset investment portfolio. Findings: The findings demonstrated the unresponsive nature of direct real estate markets relative to listed real estate markets - in some jurisdictions the extent of lag can be as much as 12 months. Whilst the research did not identify a Grainger causality relationship between listed and direct property markets across the jurisdictions, co-integration analysis does infer trend reverting price behaviour in the long run (ten years) between direct and listed real estate markets. Optimal portfolio analysis serves to demonstrate the crucial role of real estate within a multi-asset portfolio in terms of both mitigating risk and enhancing performance over the ten-year time series. Indeed, the optimal portfolio analysis highlights the compatibility and complementarity of listed and direct real estate within a multi-asset investment portfolio. Originality/value: The question if securitised real estate is a viable proxy for direct property investment is as inconclusive as it is enduring. In contrast to the large embodiment of previous work, this paper adopts an international market perspective depicting the global nature of securitised real estate investment markets whilst also reflecting on the extent of co-integration between asset classes and across jurisdictions during a period of extreme financial and economic distress.