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Analysing and Optimising Bank Real Estate Portfolio by Using Impulse Response Function, Mahalanobis Distance and Financial Turbulence

DOI: 10.4236/ojbm.2015.33032, PP. 326-344

Keywords: Mahalanobis Distance, Real Estate, Portfolio Management, Financial Turbulence, Impulse Response Function, Germany, Switzerland, Austria, Portfolio Optimisation, Efficient Frontier, Correlation

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Abstract:

This paper analyses one of the main factors that cause financial crisis and that are real estate portfolio management in banks. VAR and SVAR models were introduced and impulse response functions were obtained. The aforementioned function demonstrated how residential prices reacted to shock. Afterwards, financial turbulence index based on Mahalanobis distance and correlation between real estate prices in Austria, Germany and Switzerland was calculated and its relation to stock prices in EURO area. Financial turbulence demonstrated the lagging effect of financial crisis originating from USA. Data were taken from St. Louis FED database. Having calculated correlations, portfolio was created consisting of REITs, ETFs and stocks. It was optimised and efficient frontiers were found for different portfolio weightings. It was proved that the best way to optimise real estate portfolio was to invest in Swiss real estate as prices were growing and to hedge with Austrian real estate or some variations of ETFs.

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