Please use this identifier to cite or link to this item:
Fugazza, Carolina
Guidolin, Massimo
Nicodano, Giovanna
Year of Publication: 
Series/Report no.: 
Manchester Business School working paper 581
Welfare gains to long-horizon investors may derive from time diversification that exploits non-zero intemporal return correlations associated with predictable returns. Real estate may thus become more desirable if its returns are negatively serially correlated. While it could be important for long horizon investors, time diversification has been mostly investigated in asset menus without real estate and focusing on in-sample experiments. This paper evaluates ex post, out-of-sample gains from diversification when E-REITs belong to the investment opportunity set. We find that diversification into REITs increases both the Sharpe ratio and the certainty equivalent of wealth for all investment horizons and for both Classical and Bayesian (who account for parameter uncertainty) investors. The increases in Sharpe ratios are often statistically significant. However the out-of-sample average Sharpe ratio and realized expected utility of long-horizon portfolios are frequently lower than that of a one-period portfolio, which casts doubts on the value of time diversification.
real time asset allocation
real estate
ex post performance
parameter uncertainty
Document Type: 
Working Paper

Files in This Item:
258.25 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.