Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: Previous research has shown that real estate serves as a diversifier in mixed-asset portfolios. However, this empirical funding is beset with some drawbacks associated with direct real estate investment. In order to overcome some of these drawbacks, we use theoretical real estate exchange traded notes (ETNs) in a mean-shortfall setting to optimize an international mixed-asset portfolio. In addition, the typical long-only strategy is abandoned in favor of a 130/30 long-short and an exchange rate hedge strategy. Not only in-sample but also out-of-sample portfolios yield significant diversification benefits by means of real estate ETNs in different portfolio strategies.

Keywords: real estate derivatives; exchange traded notes; asset allocation; mixed-asset portfolio

JEL-codes: G11; G13; G15; G19; G20; R30

26 pages, December 2, 2021

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