Search results

1 – 2 of 2
Book part
Publication date: 27 June 2014

C. Sherman Cheung and Peter Miu

Real estate investment has been generally accepted as a value-adding proposition for a portfolio investor. Such an impression is not only shared by investment professionals and…

Abstract

Real estate investment has been generally accepted as a value-adding proposition for a portfolio investor. Such an impression is not only shared by investment professionals and financial advisors but also appears to be supported by an overwhelming amount of research in the academic literature. The benefits of adding real estate as an asset class to a well-diversified portfolio are usually attributed to the respectable risk-return profile of real estate investment together with the relatively low correlation between its returns and the returns of other financial assets. By using the regime-switching technique on an extensive historical dataset, we attempt to look for the statistical evidence for such a claim. Unfortunately, the empirical support for the claim is neither strong nor universal. We find that any statistically significant improvement in risk-adjusted return is very much limited to the bullish environment of the real estate market. In general, the diversification benefit is not found to be statistically significant unless investors are relatively risk averse. We also document a regime-switching behavior of real estate returns similar to those found in other financial assets. There are two distinct states of the real estate market. The low-return (high-return) state is characterized by its high (low) volatility and its high (low) correlations with the stock market returns. We find this kind of dynamic risk characteristics to play a crucial role in dictating the diversification benefit from real estate investment.

Details

Signs that Markets are Coming Back
Type: Book
ISBN: 978-1-78350-931-7

Keywords

Book part
Publication date: 11 December 2006

Patricia A. McGraw, Kamphol Panyagometh and Gordon S. Roberts

We extend Diamond's (1989, 1991) life-cycle hypothesis to posit that, once they reach the stage of bank borrowing, firms begin with prime loans and evolve toward borrowing more…

Abstract

We extend Diamond's (1989, 1991) life-cycle hypothesis to posit that, once they reach the stage of bank borrowing, firms begin with prime loans and evolve toward borrowing more cheaply at LIBOR as they grow larger, less risky and less characterized by asymmetric information. We conduct multinomial logit regressions to explain firms’ membership in one of three groups: prime only, prime and LIBOR, and LIBOR. We also examine spreads over prime and LIBOR and find that loans set up to allow borrowing at prime carry higher spreads than those allowing borrowing at LIBOR. Both sets of tests support the life-cycle hypothesis.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-441-6

Access

Year

Content type

Book part (2)
1 – 2 of 2