International Asset Allocation with Real Estate Securities in a Shortfall-Risk Framework: The Viewpoint of German and US Investors

The present paper seeks to study the possible diversification potential by the integration ofindirect real estate investments in international portfolios. To this end, monthly index-returntime-series in the time-period from January 1985 till December 1998 from real estate investmentcompanies as well as common stocks and bonds in Germany, France, Switzerland, GreatBritain and the USA were used. We utilize, due to the critical normal distribution assumption,a mean/lower-partial-moment framework. In order to take into account the influence of thecurrency risk for international investments the analyses have been undertaken both with aswell as without hedging the currency risk. We take the viewpoint of a German as well as thatof a US-investor to gain insight into the dependency of the diversification potential on thereference currency of the investor.