The role of portfolio diversification in the hotel industry: Evidence from the Italian market
Abstract
Purpose
The purpose of this paper is to study whether geographic and sector diversification allow for a significant reduction in the risk exposure of a portfolio of hotel investments in one of the major tourist markets, the Italian market.
Design/methodology/approach
This paper evaluates the benefits related to a Markowitz diversification approach for the construction of a specialised portfolio in the hotel real estate market. The portfolio analysis considers the degree of efficiency of each portfolio, the type of diversification adopted by a more efficient portfolio, the persistence of results over time and the impact of diversification constraints.
Findings
The results demonstrate that, while standard geographic and sector diversification allow for good results, the more efficient portfolios are more concentrated. The trade‐off is worse if some concentration constraints are established, but the portfolios identified are characterised by higher performance persistence.
Research limitations/implications
The analysis only considers high‐quality hotels in the Italian market. Unfortunately, some information on costs is not as detailed as would be desired. The availability of a more complete database could increase the significance of the results obtained.
Practical implications
The results are relevant for constructing all hotels' portfolios, like those managed by a real estate fund manager, in order to define the type and degree of diversification that allow for minimal risk exposure.
Originality/value
This paper is the first to apply the Markowitz theory to the Italian hotel industry in order to identify the best diversification criteria.
Keywords
Citation
Giannotti, C., Mattarocci, G. and Spinelli, L. (2011), "The role of portfolio diversification in the hotel industry: Evidence from the Italian market", EuroMed Journal of Business, Vol. 6 No. 1, pp. 24-45. https://doi.org/10.1108/14502191111130299
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited