Time and Risk Diversification in Real EstateInvestments: Assessing the Ex Post EconomicValue

Welfare gains to long-horizon investors may derive from time diversification that exploits non-zerointertemporal return correlations associated with predictable returns. Real estate may thus become moredesirable 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-sampleexperiments. This paper evaluates ex post, out-of-sample gains from diversification when E-REITs belong to theinvestment opportunity set. We find that diversification into REITs increases both the Sharpe ratio and thecertainty equivalent of wealth for all investment horizons and for both Classical and Bayesian (who account forparameter uncertainty) investors....