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Investing in International Real Estate Stocks: A Review of the Literature

Real Estate Institute, School of Business-Olin Hall, Room 340, University of San Diego, 5998 Alcala Park, San Diego, CA 92110-2492, USA. eworzala{at}sandiego.edu

C.F. Sirmans

Center for Real Estate and Urban Economic Studies, School of Business, University of Connecticut, 2100 Hillside Road, Unit 1041RE, Storrs, Connecticut 06269-1041, USA. cf{at}business.uconn.edu

This paper summarises the various findings of studies completed on the benefits of international diversification using real estate stocks. With the increased availability of data and analytical tools, the quantity and variety of work over the past decade have increased dramatically in this area. The first two sections of the paper chronologically review the studies, focusing on how the diversification benefits are analysed: in a mixed-asset portfolio context or a real-estate-only portfolio context. The third section highlights work that uses alternative analyses to the traditional mean-variance framework to examine the international real estate stock as an investment alternative. Almost all of the studies reach the same conclusion: diversification gains are possible but are often reduced if currency risk is included in the analysis.

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