An empirical study on risk and return characteristics of listed real estate investment trusts (REITs) in Asia pacific (APAC) market and determine the optimal mixed-asset portfolio with APAC REITs

Abstract

Asia Pacific Real Estate Investment Trusts (APAC REITs) have become an increasingly popular investment asset for investors seeking to diversify their investment portfolios and gain exposure to the Asia real estate market. This study aims to determine the risk and return characteristics of APAC REITs and the optimal investment allocation of APAC REITs in an investment portfolio. The study covers eight APAC REIT markets, namely Japan, Australia, Singapore, Hong Kong, Malaysia, India, China, and the Philippines. The analysis is divided into different parts. First, risk-adjusted performance is analyzed using risk-adjusted return ratios. Second, the optimal allocation of APAC REITs in domestic, regional, and international portfolios is determined using mean variance analysis. Finally, the correlation and spillover effect between APAC REITs regimes are determined. The results of the risk-adjusted return analysis show that APAC REITs markets exhibit similar risk-adjusted performance compared to their domestic stock markets. Among the APAC REITs markets covered in this study, the Australia REITs market exhibits the best long-term risk-adjusted performance, while the Philippines REIT market exhibits the best short-term risk-adjusted performance. The analysis of the allocation of REITs indicates that REITs can play a significant role in domestic, regional, and international portfolio construction due to their high risk-adjusted performance. Among the APAC REITs markets, the Philippines, Malaysia, and Australia markets exhibit the most substantial allocation in mixed asset portfolios. The study also discovers that developed REITs markets, such as Japan, Australia, and Malaysia, are less vulnerable to volatility shocks originating from other markets. This information can be used by investors to develop investment plans that capture diversification benefits. Based on these results and findings, an investment strategy is suggested at the end of the paper for four types of investors. The suggested investment strategy emphasizes the role of APAC REITs, with up to 50% allocated in the suggested strategy. It is believed that with the continuous growth of the markets, investment can place more emphasis on the market. It is hoped that the findings of this study can provide insight and guidance to investors on investing in APAC REITs and stimulate further research on related topics.