Currency Hedging for International Real Estate Portfolios

The aim of this thesis is to examine the role of real estate investments in the global financial system. The comprehensive investment spectrum conditional on currency-unhedged and fully hedged portfolios is conducted on 23 individual assets from the perspective of three major economies -- the euro, pound sterling, and the U.S. dollar. The approach used in the analysis provides a high information content as it distinguishes between the sources of diversification benefits in a statistically significant way. The econometric analysis shows that internationally diversifying a portfolio is superior to a domestic investment. The strongest evidence thereof is found in global bonds during bear markets, while diversification properties for international stocks are detected in bull markets. Global real estate investments are in fact powerful diversifiers as long as exchange rate risk is fully hedged. Overall, the findings confirm that global investing with hedged positions are valuable investments from the perspective of diversification.