International Real Estate Mutual Fund Performance: Diversification or Costly Information?

Article

Abstract

We investigate the net effect between diversification benefit and information cost of international real estate mutual funds from three dimensions: whether investors can benefit from investing in international real estate mutual funds, whether managers of international real estate mutual funds possess superior market knowledge and timing abilities, and whether investors are motivated by returns or diversification. Our findings are threefold. First, the results show that international real estate mutual funds perform better and are less risky than domestic real estate mutual funds before Jun 2007. That is, diversification benefits outweigh the information costs, and investors therefore gain from investing in international real estate mutual funds. However, the benefit is reduced because of the economic shock of sub-prime financial crisis. Second, on average, neither international mutual fund managers nor domestic mutual fund managers possess market timing abilities. Finally, we find that fund flows are driven by investors’ return-chasing behaviors and fund size, but not by diversification purpose.

Keywords

Domestic real estate mutual funds Fund performance International real estate mutual funds Market timing ability Mutual fund flows Stock selection ability 

JEL Classification

G11 G15 

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of FinanceYuan Ze UniversityChung-LiTaiwan
  2. 2.Department of International BusinessNational Taiwan UniversityTaipei CityTaiwan

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