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Abstract
Executive Summary. The paper studies the temporal variations in the conditional correlations between real estate investment trust (REIT) returns and equity, bond, and commodity returns. The findings reveal that the correlations between REITs and equity returns rose over the period analyzed, while the correlations with bonds and commodities fell. The findings also reveal that the correlations with REITs rose especially in periods of above average volatility in equity and bond markets; however, for U.S. government securities and the Goldman Sachs Commodity Index, the conditional correlations with REITs fell in periods of high volatility in these markets. This indicates that to reduce the total risk of their portfolio, investors in U.S. government securities and commodities should tilt their asset allocation more towards real estate when they anticipate changes in monetary policy or abnormal fluctuations in commodity prices.