Brazilian REITs: Are They an Opportunity for Diversification and Performance?

We study the dynamic diversification benefits of Brazilian real estate investment trusts (BR-REITs) by analyzing their complex dynamic relationship with stock and government bond indices. We estimate the assets’ conditional variance–covariance matrix using a vector autoregressive multivariate dynami...

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Bibliographic Details
Published in:The journal of real estate portfolio management 2023-07, Vol.29 (2), p.127-139
Main Authors: Bernardo, Márcio R., Campani, Carlos Heitor, Roquete, Raphael Moses
Format: Article
Language:English
Subjects:
Bonds
Diversification
Investment trusts
Portfolios
Risk adjustment
Stocks
Trusts
Volatility
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Summary:We study the dynamic diversification benefits of Brazilian real estate investment trusts (BR-REITs) by analyzing their complex dynamic relationship with stock and government bond indices. We estimate the assets’ conditional variance–covariance matrix using a vector autoregressive multivariate dynamic conditional correlation GARCH model with Student’s t distribution (VAR-DCCt MGARCH) and a global minimum variance portfolio. We find that BR-REITs provide strong risk-adjusted performance and persistent diversification benefits for Brazilian investors. Furthermore, these diversification benefits are not impacted by the market performance of stocks and bonds. Nevertheless, our results show that the BR-REITs’ conditional correlations with stocks and bonds are dynamic; thus, BR-REIT investors should employ dynamic investment strategies that account for time variation in REITs’ diversification benefits. Our results suggest that Brazilian investors, particularly long-term investors, would secure significant performance and diversification benefits, lowering their portfolios’ short-term volatility, by investing in BR-REITs.
ISSN:1083-5547
2691-1205
DOI:10.1080/10835547.2023.2189509