Abstract
The purpose of this study is to examine the long-run performance of homebuilder stocks and the potential role of the sector in institutional mixed-asset portfolios. Considering a 30-year history of returns of common stocks, corporate bonds, REITs, T-bills, and homebuilder stocks, homebuilder stocks dramatically outperform all other asset classes, although superior performance is not significant on a risk-adjusted basis. However, the relatively low correlations between homebuilder stocks and stocks and bonds make it beneficial to include homebuilder stocks in a mixed-asset portfolio. The study employs a bootstrap procedure to investigate the diversification benefits under the condition of certainty as well as uncertainty. The findings reveal that including homebuilder stocks can improve the mean-variance efficiency of portfolios that contain only traditional financial assets such as common stocks, bonds, and T-bills.