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1. Introduction
The integration (or lack of) between direct and indirect real estate investments has been a subject of intense debate in the real estate literature. One major reason for this concern is to ascertain whether the two classes of real estate investments are substitutes and/or complements, as well as if there are diversification and risk reduction benefits when including both assets in a multi-asset portfolio.
Generally, investors could gain exposure into the real estate market by investing in direct and indirect real estate investments. Currently in Nigeria, as in most part of the world, most investors having significant holding in illiquid, highly localized and capital intensive direct real estate also have preference for indirect real estate because of its liquidity, divisibility and transferability. However, it is not clear if they have information on the link and integration between the two classes of real estate investments before venturing into such portfolio allocation decisions. This understanding becomes essential because from the knowledge of diversification, assets that are not integrated but segmented have the potential of offering diversification and portfolio optimization benefits when combined in a portfolio (Ling and Naranjo, 1999; Tuluca et al. 2000; Yavas and Yildirim, 2011). Hence, determining the interrelatedness of assets in a portfolio is vital before making portfolio combination choices (Yunus et al., 2012). The understanding of the integration between the direct and indirect real estate investments therefore becomes vital arising from the need to provide investors and portfolio managers, contemplating the inclusion of both assets in their mixed asset portfolio, with adequate information and knowledge that will aid the making of well-informed portfolio allocation decisions.
In tandem with this, this study compared the return/risk performance levels of direct and indirect real estate investments in the Nigerian real estate market and analyzed the nature of the integration between the two classes of assets. This is with a view to determining the substitutability/complementarity of both assets and establishing if there is possibility for diversification and risk reduction benefits when including both assets in a domestic asset portfolio. Studies of this nature are important, as they are particularly useful to international investors who may be contemplating investing in the Nigeria real estate market, as it will assist them in making well informed investment...