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Evidence of segmentation in domestic and international property markets

Patrick J. Wilson (School of Finance and Economics, University of Technology, Sydney, Australia)
John Okunev (School of Finance and Economics, University of Technology, Sydney, Australia)

Journal of Property Finance

ISSN: 0958-868X

Article publication date: 1 December 1996

3105

Abstract

The risk/return trade‐off is a perennial problem of portfolio managers. Portfolio diversification strategies should be such that investments are held in markets that are well‐insulated from each other so that the effects of market fluctuations in one market are not transferred to the other. Conventional wisdom suggests that a well‐diversified portfolio should contain assets spread across different markets, such as holdings of equities, bonds and property, while an increasingly accepted notion is that portfolios should also be diversified internationally. Research over the last few years has, if not questioned this conventional wisdom, at least sought confirmation. The current paper continues this inquiry. Looks, in particular, at the twin issues of whether property should form part of a well‐diversified domestic portfolio, and whether property should form part of a portfolio that is diversified internationally. Using the relatively new technique of cointegration analysis, provides evidence from the USA, the UK and Australia that domestic real estate and equity markets are segmented, and also provides evidence that securitized property markets are segmented internationally ‐ implying that there are risk‐reduction benefits to be gained through diversification in both instances.

Keywords

Citation

Wilson, P.J. and Okunev, J. (1996), "Evidence of segmentation in domestic and international property markets", Journal of Property Finance, Vol. 7 No. 4, pp. 78-97. https://doi.org/10.1108/09588689610152408

Publisher

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MCB UP Ltd

Copyright © 1996, MCB UP Limited

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