Chiang, Thomas C. Lean, Hooi Hooi Wong, Wing-keung
Year of Publication:
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 1 [Year:] 2008 [Issue:] 1 [Pages:] 1-40
This paper re-examines the performance of REITs, stocks, and fixed-income assets based on the preferences of risk-averse and risk-seeking investors using mean-variance and stochastic dominance approaches. Our findings indicate no first-order stochastic dominance and no arbitrage opportunity among these assets. However, our stochastic dominance results reveal that in order to maximize their expected utility, the risk-averse prefer fixed-income assets over real estate, which, in turn, is preferable to stocks. On the other hand, to maximize their expected utility, all risk-seeking investors would prefer to invest in stocks than in real estate, but real estate, in turn, is preferable to fixed-income assets.