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The Role of Real Estate in the Portfolio Allocation Process
Author(s) -
Kallberg Jarl G.,
Liu Crocker H.,
Greig D. Wylie
Publication year - 1996
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00695
Subject(s) - real estate , diversification (marketing strategy) , treasury , economics , portfolio , cost approach , bond , equity (law) , capitalization rate , real estate investment trust , financial economics , context (archaeology) , cash flow , alternative investment , econometrics , finance , microeconomics , business , market liquidity , marketing , archaeology , political science , law , paleontology , biology , history
This study explores the role of direct real estate investment in a portfolio context incorporating the real estate imperfections of indivisible assets and no short sales. Mean‐variance efficient portfolios are calculated using Treasury‐bills, bond and equity indices together with cash flows and appraised values from a set of twenty‐two properties having an aggregate appraised value of $336 million. Real estate diversification benefits are shown to be the greatest with smaller properties and are most advantageous at higher target levels of return. The study suggests that a 9% allocation to real estate is optimal, rather than the 20% figure suggested in other studies.