The long‐run diversification attributes of commercial property

Correlation coefficients measuring the historical relationships of returns on commercial property and both equities and conventional gilts appear to be low. Conversely, the correlation between gilts and equities appears to be relatively high. This implies that property provides diversification benefits to a mixed asset portfolio dominated by equities and gilts. However, there is some debate as to the reliability of these correlations and property’s diversification benefits. In this paper we use Granger causality tests and cointegration techniques to demonstrate that there is no long‐run relationship between property returns and those of either gilts or equities. This confirms the diversification benefits of including property in a mixed asset portfolio.