EPRA Broadening the Investor Base Study - Correlations of Property Stocks with other Asset Classes

Abstract

EPRA and IRE|BS decided to embark on a detailed study focused on the correlation of property
stocks. The diversification benefits of an investment in property companies depend mainly on the
correlation with other asset classes, such as stocks or bonds. A closer look at the evolution of the
correlations over time already gives first insight into the evolution of the diversification potential of
property stocks. We hope that this might serve as a reference for both, practitioners and researchers.
Furthermore, this study may ignite a broader range of investor interest wishing to examine the
diversification benefits of property stocks.
In addition to the FTSE EPRA/NAREIT Global Total Return Index and the FTSE EPRA/NAREIT Europe
Total Return Index we include the FTSE EPRA/NAREIT Indices for USA, UK, Australia, France, Sweden
and the Netherlands in our study. We do not consider big economies like Germany, Italy and Spain
because there are only small real estate stock markets in these countries. For example, for Germany,
only 0.64% of total real estate is quoted on the stock market and listed real estate represents only
0.45% of the stock market. For Italy and Spain, we observe similar market capitalisations. Here, listed
real estate represents only 0.58% and 1.91% of the stock market, respectively.
It is the aim of the EPRA/IRE|BS study to illustrate the correlation of property stocks with the large
universe of investment opportunities. We have identified three classical asset classes: stocks, bonds
and money (treasury bills), and five alternative asset classes, including direct real estate, emerging
market stocks, hedge funds, private equity and commodities.