The role of Malaysian securitised real estate in a mixed‐asset portfolio

Abstract

Purpose

Previous studies on the Malaysian securitised real estate market have largely emphasised on performance analysis, whereas the importance of securitised real estate in asset allocation is largely ignored. Therefore, the purpose of this paper is to examine the role of Malaysian property shares and real estate investment trusts (REITs) in a mixed‐asset portfolio from 1991 to 2006.

Design/methodology/approach

The mean‐variance and downside risk optimisations were utilised to assess the role of REITs and property shares in a mixed‐asset portfolio allocation. More specifically, the portfolio diversification potential and return enhancement benefits for both assets were examined.

Findings

The results showed that property shares offer little diversification benefits or portfolio return enhancement, whereas the equally weighted REITs portfolio does provide some diversification benefits and return enhancements under the mean‐variance and downside risk frameworks. However, the benefits have diminished in recent years. Besides, the results also revealed that the equally‐ and value‐weighted REIT portfolios do behave differently.

Research limitations/implications

This study has several important implications for investors. Importantly, investors should consider the inclusion of REITs rather than property shares in their portfolios.

Originality/value

This paper is one of few studies in emerging markets, although Malaysia was the first country to introduce REITs in Asia. Additionally, it could be the first attempt to assess the downside risk of Malaysian securitised real estate.

Citation

Lin Lee, C. and Hwa Ting, K. (2009), "The role of Malaysian securitised real estate in a mixed‐asset portfolio", Journal of Financial Management of Property and Construction, Vol. 14 No. 3, pp. 208-230. https://doi.org/10.1108/13664380911000440