The Diversification Benefits of Foreign Real Estate: Evidence from 40 Years of Data

Round 1

Reviewer 1 Report

The present study examines the diversification benefits of foreign real estate investments using more recent data over a 40-year period. Authors use monthly data from 1984 through 2023 for a long-term evaluation of real estate’s diversification benefits to a US equity investor. Whereas previous research studying the benefit of adding foreign equity or real estate was often limited to using global indices or a handful of individual countries, they use a sample of 13 individual countries from regions around the world. The individual country equity and real estate indices in the sample are value-weighted, reflecting the actual liquidity to investors. The present paper examines risk, return, and correlations, and determine rolling correlations to evaluate changes in potential diversification benefits over time. Even if the work is interesting and the authors have made a significant contribution to the field's literature with additional findings, a minor revision appears to be needed before publishing:

-      Introduction: Authors do not sufficiently address the gap and research objectives. Furthermore, I think it's insufficient to contribute to the literature only by the use of wider sample data.

-      Approach: Please create an appropriate section for the methodology and related the equation to the objectives.

-      Results: please explain how you calculate the rolling correlation? Do you use the DCC approach? If this is the case, I think you need to detailed more the model. Which GARCH you use…

-      Discussion: More explanation is required to clarify how policymakers and investors will apply the study's findings.

-      Robustness check: I enhance the quality of the paper, I recommend authors to use more recent model such as CVaR optimization efficient frontier.

Author Response

Thanks for your kind suggestions, please see the response attached.

Author Response File: Author Response.pdf

Reviewer 2 Report

Overall, this paper makes a significant contribution to the literature on portfolio diversification and real estate investment, providing compelling evidence to support the strategic inclusion of foreign real estate in investment portfolios for improved long-term performance. The methodology is clear, the data solid, and the interpretations insightful. I have no further suggestions and recommend the paper for publication as it stands.

Author Response

Thanks for your comments.

Reviewer 3 Report

  I find the provided article to be well-structured and informative. It effectively encapsulates the essence of Conover and other researchers on the diversification benefits of foreign real estate investments. The language is clear and concise, making it accessible to a broad audience. The article adeptly highlights the key findings of the study and underscores the importance of considering global real estate markets in portfolio diversification strategies. Overall, it is a well-written article that effectively communicates the significance of the research.

Author Response

Thanks for your comments.

Round 2

Reviewer 1 Report

I think the authors have adequaly addressed my comments.