Empirical Research On REITs Portfolio Selection

Real Estate Industry is one of the main industries in our country. But Financing Mode of Real Estate Development Enterprises is self-accumulation to expand production. Loans are the chief financial source. In this background, the market can bring enormous financial risk. So creating financing tool is the key to change the present situation of lack of own capital and excessively depending on loan of the bank in the real estate industry. The development of real estate industry to a certain level calls for the emergence of real estate investment funds (REITs).This paper first analyzes the investment characteristics of real estate investment funds, income risk and the classical theory of portfolio. A new kind of the optimum choice on the capital collocation has been put forward in this paper. This paper proposes the calculating formula and proves its applicability by an empirical variation study. The conclusion drawn from this paper provides: First, at the strategic asset allocation level, a Risk Averter with a significant exposure to a market segment that shows a negative correlation shift would benefit from adding market segments with a positive correlation shift, whose feasibility and effectiveness to full diversification by both property type and region are proved. Second, once the strategic asset allocation weights have been determined, the fund manger may wish to modify the portfolio allocations by making tactical asset allocation decisions to exploit predicted correlation shifts resulting from changes in the expected volatility of the market. If it is expected that the market is about enter a volatile down-market phase, the fund manager should consider adjusting the fund's current exposure by increasing the funds weighting into those market segments that display significantly positive correlation shifts with the market. This minimizes losses.