A Study on a Method for Composing a Portfolio for REITs Investment Using Markowitz's Portfolio Model

This study presents a portfolio selection strategy focusing on construction corporations by taking into accounts managerial efficiency and growth potential of a company. Data envelopment analysis(DEA) methodology and dividend scoring table are adopted for evaluating the managerial efficiency and growth potential of a company respectively. In order to show the effectiveness of the portfolios selected by the strategies proposed in this study, we constructed 3 portfolios for every 4 years (2007-2010) out of 56 listed construction corporations in KOSPI and KOSDAQ, and proved that our portfolios are superior to benchmark portfolios in terms of portfolio evaluation measures. Key Words :

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An Empirical Study on the Risk Diversification Effect of REITs

조규수(Cho¹,

이상효(Lee²,

김재준(Kim³

2013

Korean Journal of Construction Engineering and Management

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A Ab bs st tr ra ac ct t Following the U.S sub-prime mortgage crisis and a slump in properties market, the probability is rising that housing investment would not yield high profit as it used to do until early 2000s. For this reason, the nature of properties market is undergoing a change from a source of lucrative investment to a source of a relatively low but stable profit, such as profit-oriented real estate. This trend is likely to promote REITs market, which is a leading product for indirect investment. Until now, the REITs market has been growing slowly compared to a general housing market or financial markets. However, as the importance of risk management based on portfolio theories increases, stable profit generation of REITs can be effective in risk management. This study conducts an empirical analysis on how investment risks can be diversified by including REITs—a source of relatively stable profit in the equity market—in investment portfolio. The analysis results showed that, similar to food and beverage stocks of highly defensive nature, REITs has a relatively weak correlation with KOSPI that reflects the overall market performance. It also showed very low standard deviation in case of minimum variance portfolio. This suggests that including REITs in investment portfolio can be as effective as including food and beverage stocks for risk diversification. Due to uncertainties, investment always accompanies risks, and balancing potential profits and risks is essential.

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A Study on a Method for Composing a Portfolio for REITs Investment Using Markowitz's Portfolio Model

Cited by 4 publications

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Strategy for Portfolio Management using Inventory Control Approach

Strategy for Portfolio Management using Inventory Control Approach

A Portfolio Selection Strategy with Consideration of Managerial Efficiency and Growth Potential of Construction Corporations

An Empirical Study on the Risk Diversification Effect of REITs

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