Research

Kurtosis and consequences - the case of international property shares

This paper analyzes the tail behavior of property stocks within an international context. Our results highlight the non-normality of property share returns for all of the major markets included in our sample. We find that excess kurtosis decreases over time in all markets, in line with the distributional pattern of common stocks of comparable size. In the cross-sectional analysis, kurtosis is found to be greater among real estate stocks, which have a high trading volume, are geographically specialized, and are small in terms of market capitalization. Property focused firms in contrast are found to be significantly less negatively skewed than regionally focused or diversified property firms. With respect to the consequences for investors, we find that the inclusion of a zero-investment kurtosis-mimicking portfolio significantly improves the risk-adjusted performance of a mean-variance efficient portfolio.

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