Portfolio allocation for Korean investors in the US real estate market
Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.
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The purpose of this research was to explore portfolio diversification by property type for Korean institutional investors in the U.S. real estate market. In the process, we analyzed the rapidly increasing Korean investment in the U.S. real estate market and identified the points cross-border investors should consider for proper asset diversification by property type. One of the main reasons investors make cross-border investments is to diversify their portfolios. Thus, cross-border investors need to properly diversify their investments by considering correlations between foreign and domestic properties. However, Korean institutional investors have shown an apparent preferential tendency for the U.S. real estate market, much more than other cross-border investors, and as such, they risk under-performing compared to investors with more diversified portfolio strategies. Therefore, in this research, 12 optimal portfolios were calculated by applying Markowitz's modem portfolio theory. Following this, the Sharpe ratios of calculated models without limitations of investment were compared to investment solely in Korean properties and U.S. office properties by Korean institutional investors. These analyses revealed considerable inefficiencies in the current international investment trend of Korean institutional investors. In addition, the comparisons of the optimal portfolios with correlations from more recent market data suggested that if Korean institutional investors continue investing in only office properties in the U.S. real estate market, their investment inefficiencies will become much larger than they currently are. Thus, we concluded that they should diversify their investment in U.S. residential, industrial, and retail properties and Korean properties rather than just investing in U.S. office properties and Korean properties.
Thesis: S.M. in Real Estate Development, Massachusetts Institute of Technology, Program in Real Estate Development in conjunction with the Center for Real Estate, 2017Cataloged from PDF version of thesis.Includes bibliographical references (page 44).
DepartmentMassachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development; Massachusetts Institute of Technology. Center for Real Estate
Massachusetts Institute of Technology
Center for Real Estate. Program in Real Estate Development.