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Article
Publication date: 1 December 1996

Patrick J. Wilson and John Okunev

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…

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.

Details

Journal of Property Finance, vol. 7 no. 4
Type: Research Article
ISSN: 0958-868X

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Article
Publication date: 1 December 2001

Patrick J. Wilson and John Okunev

Over the last decade or so there has been an increased interest in combining the forecasts from different models. Pooling the forecast outcomes from different models has…

Abstract

Over the last decade or so there has been an increased interest in combining the forecasts from different models. Pooling the forecast outcomes from different models has been shown to improve out‐of‐sample forecast test statistics beyond any of the individual component techniques. The discussion and practice of forecast combination has revolved around the pooling of results from individual forecasting methodologies. A different approach to forecast combination is followed in this paper. A method is used in which negatively correlated forecasts are combined to see if this offers improved out‐of‐sample forecasting performance in property markets. This is compared with the outcome from both the original model and with benchmark naïve forecasts over three 12‐month out‐of‐sample periods. The study will look at securitised property in three international property markets – the USA, the UK and Australia.

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Journal of Property Investment & Finance, vol. 19 no. 6
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 March 1999

Patrick Wilson and John Okunev

Understanding cyclical activity is an important component of efficient portfolio management. Property appraisal models that do not explicitly take into account cyclical…

Abstract

Understanding cyclical activity is an important component of efficient portfolio management. Property appraisal models that do not explicitly take into account cyclical fluctuations may produce unrealistic valuation estimates resulting in property assets being incorrectly added to or removed from the general investment portfolio. In this paper we use conventional spectral analysis techniques to examine property and financial assets for evidence of cycles and co‐cycles. One finding is that the very pronounced cyclical patterns that appear in direct real estate markets and the economy as a whole are very much less obvious once they have filtered through to securitised property markets and financial assets markets.

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Journal of Property Investment & Finance, vol. 17 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 December 1996

Patrick Wilson, John Okunev and Guy Ta

Conventionally, between 5 and 20 per cent of a portfolio is invested in real estate. Whether this is prudent diversification or not depends on whether property and other…

Abstract

Conventionally, between 5 and 20 per cent of a portfolio is invested in real estate. Whether this is prudent diversification or not depends on whether property and other financial assets markets are integrated. The notion of market integration/segmentation across the economy is of central importance. Disturbances in market fundamentals in a given market generate movements of capital into and out of the affected market. If various markets are well integrated, then it is expected that a high degree of asset substitution will take place, such substitution having a significant impact on price fluctuations in the relevant market. On the other hand, if markets are not integrated, then this has significant implications for portfolio investment where managers seek to develop well‐diversified portfolios as a means of risk reduction. Recent literature has recognized the need to understand and measure the degree of market integration, and research has focused on techniques to do this. Studies have attempted to measure the degree of integration in money and bond markets, real assets markets and among international real estate investment trusts. Uses cointegration techniques to examine the extent to which physical real estate markets and financial assets markets are integrated. Tends to support the notion of market segmentation and, by default, supports the conventional wisdom of diversification between real estate and other financial assets.

Details

Journal of Property Valuation and Investment, vol. 14 no. 5
Type: Research Article
ISSN: 0960-2712

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Article
Publication date: 1 November 2003

Jeffrey Gropp

Evidence of mean reversion in U.S. stock prices during the post‐World War II era is mixed. I find that using the standard portfolio formation method to construct…

Abstract

Evidence of mean reversion in U.S. stock prices during the post‐World War II era is mixed. I find that using the standard portfolio formation method to construct size‐sorted portfolios is inadequate for detecting mean reversion. Using alternative portfolio formation methods and additional cross‐sectional power gained from size‐sorted portfolios during the period 1963 to 1998, I find strong evidence of mean reversion in portfolio prices. My findings imply a significantly positive speed of reversion with a half‐life of approximately three and a half years. Parametric contrarian investment strategies that exploit mean reversion outperform buy‐and‐hold and standard contrarian strategies.

Details

Managerial Finance, vol. 29 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 April 2018

Justine Wang, Alla Koblyakova, Piyush Tiwari and John S. Croucher

This paper aims to explore principal drivers affecting prices in the Australian housing market, aiming to detect the presence of housing bubbles within it. The data set…

Abstract

Purpose

This paper aims to explore principal drivers affecting prices in the Australian housing market, aiming to detect the presence of housing bubbles within it. The data set analyzed covers the past two decades, thereby including the period of the most recent housing boom between 2012 and 2015.

Design/methodology/approach

The paper describes the application of combined enhanced rigorous econometric frameworks, such as ordinary least square (OLS), Granger causality and the Vector Error Correction Model (VECM) framework, to provide an in-depth understanding of house price dynamics and bubbles in Australia.

Findings

The empirical results presented reveal that Australian house prices are driven primarily by four key factors: mortgage interest rates, consumer sentiment, the Australian S&P/ASX 200 stock market index and unemployment rates. It finds that these four key drivers have long-term equilibrium in relation to house prices, and any short-term disequilibrium always self-corrects over the long term because of economic forces. The existence of long-term equilibrium in the housing market suggests it is unlikely to be in a bubble (Diba and Grossman, 1988; Flood and Hodrick, 1986).

Originality/value

The foremost contribution of this paper is that it is the first rigorous study of housing bubbles in Australia at the national level. Additionally, the data set renders the study of particular interest because it incorporates an analysis of the most recent housing boom (2012-2015). The policy implications from the study arise from the discussion of how best to balance monetary policy, fiscal policy and macroeconomic policy to optimize the steady and stable growth of the Australian housing market, and from its reconsideration of affordability schemes and related policies designed to incentivize construction and the involvement of complementary industries associated with property.

Details

International Journal of Housing Markets and Analysis, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 5 August 2019

Korhan Gokmenoglu and Siamand Hesami

Real estate and stocks are two major asset types in an investor’s portfolio. Therefore, this paper aims to investigate the relationship between these two markets to…

Abstract

Purpose

Real estate and stocks are two major asset types in an investor’s portfolio. Therefore, this paper aims to investigate the relationship between these two markets to provide a valuable insight into the process of portfolio optimization and security selection.

Design/methodology/approach

This study examines the long-run relationship between residential real estate prices and stock market index in the case of Germany for the period of 2005-2017 by applying time series econometrics techniques. To this aim, this study uses Hedonic House Price Index as a proxy for real estate prices and DAX30 as a proxy for stock prices. Moreover, three additional variables, namely, consumer confidence, credit availability and supply of mortgage loans, are incorporated as control variables to assess the robustness of the results.

Findings

Obtained empirical results indicate a long-run relationship between stock prices and real estate prices which suggests that in long-run, there is no diversification benefit from allocating stock and real estate assets in a portfolio. This finding is especially important for long-term investors such as pension funds.

Originality/value

To the authors’ best knowledge, this is the first study that empirically investigates the relationship between the real estate market and stock prices using the Hedonic Price Index for the case of Germany.

Details

International Journal of Housing Markets and Analysis, vol. 12 no. 4
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 3 July 2017

Arvydas Jadevicius and Simon Hugh Huston

The purpose of this paper is to assess the duration of the UK commercial property cycles, their volatility and persistence to gauge future market direction.

Abstract

Purpose

The purpose of this paper is to assess the duration of the UK commercial property cycles, their volatility and persistence to gauge future market direction.

Design/methodology/approach

The study employs a novel approach to dissect cycles in a form of a three-step algorithm. First, the Hodrick-Prescott de-trends the selected variables. Second, volatility (measured by the variance) screens periods of atypical fluctuations in the series. Finally, the series is regressed against its past values to assess the level of persistence. The sequential steps screen the length of the cycles in UK commercial property market to facilitate interpretation.

Findings

The estimates suggest that UK commercial property market follows an eight-year cycle. Combined modelling results indicate that the current market trend is likely to change over the coming year. The modelling suggests increasing probability of a market correction in late 2016/early 2017.

Practical implications

This updated appreciation of the UK commercial property cycle duration allows for better market timing and investment decision making.

Originality/value

The paper adds additional evidence on the contested issue of UK commercial property cycle duration.

Details

Journal of Property Investment & Finance, vol. 35 no. 4
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 April 2014

Hui-Ching Sana Hsieh

The real estate markets in Asia have attracted significant investor attention as they have grown rapidly in recent years. Both local and foreign investors continue to…

Abstract

Purpose

The real estate markets in Asia have attracted significant investor attention as they have grown rapidly in recent years. Both local and foreign investors continue to display a strong appetite for Asian real estate investment projects. Given the different characteristics of listed real estate stocks, the purpose of this paper is to focus on the causal relations between the financial variables of these stocks. This financial analysis can help investors to understand the characteristics of listed real estate companies, provide implications for optimal asset allocation decisions, and also increase the predictability of portfolio returns.

Design/methodology/approach

In this research, the paper investigates the contemporaneous and causal relations between stock returns, trading volume and volatility in a domestic market context and between different national markets for listed real estate companies in seven Asian economies.

Findings

The paper finds that there are positive contemporaneous relations between trading volume and both returns and absolute returns. When the paper examines the causal relations between the financial variables, the evidence implies that current trading volume helps to explain the returns indirectly by leading return volatility; however, trading volume does not help to explain future returns directly. Extending the causality test to international markets, the listed real estate portfolios of the four Southeast Asian countries are found to be more closely correlated than those of the other three countries studied here. Among the four Southeast Asian countries, Singapore, the only developed country, is found to play an influential role, its current financial variables having predictive power for the other countries.

Originality/value

This research provides global investors with a better understanding of the Asian listed real estate market, showing that trading volume contains important information regarding returns, that the characteristics of listed real estate companies are closer to those of the financial market than those of the real estate markets, and that the markets of the major economies have extensive influence over the smaller markets. Moreover, given the scarcity of research on the performance of Asian listed real estate companies themselves, this study improves the completeness of the academic literature.

Details

International Journal of Managerial Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 13 September 2011

Kamran Ahmed, John Hillier and Elisabeth Tanusasmita

The purpose of this paper is to assess the financial disclosure vis‐á‐vis economic reality of research and development (R&D) expensed by Australian firms under the…

Abstract

Purpose

The purpose of this paper is to assess the financial disclosure vis‐á‐vis economic reality of research and development (R&D) expensed by Australian firms under the pre‐2005 Australian generally accepted accounting principles (A‐GAAP) regime via the lens of market‐to‐book.

Design/methodology/approach

The authors estimated firms' R&D profit rate, measured R&D revenue intensity and modelled the impacts of these and related economic factors, via economic and financial disclosure channels, on market‐to‐book using data for 1988‐2004.

Findings

R&D, on average, was profit neutral and had undetectable impacts on market‐to‐book whether via equity valuation or financial disclosure.

Research limitations/implications

Market‐to‐book's information content is best viewed as conditional on the reference disclosure regime. Australian firms' typically at best minimal R&D profitability is an international anomaly. Data limitations in terms of the generating process and availability mean that R&D's impact on market‐to‐book via financial reporting is not definitively determined.

Practical implications

Restrictive rules on the capitalization of intangible asset‐related expenditures under A‐GAAP apparently did not adversely impact market‐to‐book's economic information. AIFRS's more permissive rule risks compromising market‐to‐book's reliability in such a role.

Originality/value

For Australia, the paper is anticipated to be the first to estimate the profit rate of R&D, measure the intensity of R&D, and model R&D's influence on the market‐to‐book ratio. It develops a framework for the economic and financial reporting impacts of investments on a key indicator of firms' financial standing and contributes to the debate on identifiable intangibles' disclosure.

Details

Accounting Research Journal, vol. 24 no. 2
Type: Research Article
ISSN: 1030-9616

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