Real Estate Asset Allocations and International Real Estate Markets

Abstract

In this paper we examine the institutional real estate ownership patterns of life insurance companies for 10 countries over the period 1986-96. The countries included are Australia, Austria, Belgium, France, Italy, the Netherlands, Spain, Sweden, the United Kingdom, and the United States. We find that most institutional investors worldwide have shifted out of real estate assets and into stocks and bonds over the last decade. We then investigate whether this behavior is the result of changing investor perceptions or a shift in stock market capitalization. To test this hypothesis, the paper derives measures of ex ante real estate returns following previous empirical work in finance. The results indicate that only a small proportion of what is driving institutional investors' real estate portfolio decisions is actually explained by changing investor perceptions and lagged unexpected excess returns.