The allocation to property in the multi‐asset portfolio: The evidence and theory reconsidered

Macgregor, Bryan D.; Nanthakumaran, N.

doi:10.1080/09599919208724048

Cited by 67 publications

(34 citation statements)

References 28 publications

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“…Perhaps more important, real estate, because of its high correlation with inflation, offers excellent inflation-hedging benefits." These conclusions find support by the findings of other researchers in the real estate area, some of which were mentioned above; see also Lee (1995, 1997), MacGregor and Nanthakumaran (1992), and Pagliari, Webb, and Del Casino (1995).…”

Section: Introductionsupporting

confidence: 83%

Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis

Lazimy

2006

Ann Oper Res

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We extend the classic mean-variance framework to a broad class of investment decisions under risk where investors select optimal portfolios of risky assets that include perfectly divisible as well as perfectly indivisible assets. We develop an algorithm for solving the associated mixed-integer nonlinear program and report on the results of a computational study. We then study the mean-variance structure of the investment frontier facing an individual investor in the presence of investment opportunities in both risky divisible and indivisible assets. Finally, we analyze the economic implications of the presence of investment opportunities in risky indivisible assets on the investor's investment strategy and on his risk evaluation.

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Section: Introductionsupporting

confidence: 83%

Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis

Lazimy

2006

Ann Oper Res

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“…These smooth measures will overstate the case for property. A number of commentators have suggested modifications to the model to try to overcome or limit these problems (for example, see Blundel and Ward, 1987, Lee, 1989and MacGregor and Nanthakumaran, 1992, but issues relating to the appropriateness and rigour of the model remain.…”

Section: Building Expectations Into the Modelmentioning

confidence: 98%

Decision theory and real estate investment: an analysis of the decision‐making processes of real estate investment fund managers

French

2001

Manage Decis Econ

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Decision theory is the study of models of judgement involved in, and leading to, deliberate and (usually) rational choice. In real estate investment, there are models for the pricing and allocation of assets. These asset allocation models suggest an optimum allocation between the respective asset classes based on retrospective judgements of performance and risk. The representation and role of real estate in a multi-asset portfolio has, historically, been viewed in the context of portfolio theory. Real estate is selected, as other assets, on the basis of some criteria, e.g. commonly, its marginal contribution to the production of a mean-variance efficient multi-asset portfolio, subject to the investor's objectives and capital rationing constraints. However, decisions are made relative to current expectations and current business constraints. Whilst a decision-maker may believe in the required optimum exposure levels, as dictated by an asset allocation model, the final decision may|will be influenced by factors outside the parameters of the mathematical model. The focus of decision theory is on the mathematical models. These may be probability based, loss functions, or other forms of statistical representations of judgements. Yet, much of decision theory does not lie entirely within any one discipline: it draws upon psychology, economics, mathematics, statistics, social sciences and many other areas of study. This paper discusses investors' perceptions and attitudes towards real estate, and highlights the important difference between theoretical exposure levels and pragmatic business considerations. The lynchpin in the decision-making process is how investors perceive risk. The concept of risk plays a central role in various kinds of decision problems under uncertainty. It is possible that the definition of risk within an asset allocation model, where risk is equated with the uncertainty of achieving a specific required return, sits uncomfortably with the definition of risk used by the decision-maker, where risk may equate to the consequence of not matching the performance of the competitors. In this paper, the author discusses the behavioural aspects of the decision-making process for UK pension funds in their asset allocation role, and relates the various decision-making models to the that process. Whilst the apparent question being asked is 'how much should they invest in real estate?', the answer achieved must be viewed in the context of what is pragmatically possible, or institutionally acceptable, with the constraints of business risk considerations. Copyright © 2001 John Wiley & Sons, Ltd.

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“…Thus, because the market value of real estate is infrequently observed, appraisal based valuation is commonly relied upon for real estate portfolios. Nevertheless, there is a range of corrections available for these estimation issues (Byrne and Lee, 1995;Cho et al, 2003;Geltner and Goetzmann, 2000;Georgiev et al, 2003;MacGregor and Nanthakumaran, 1992;Newell and MacFarlane, 1996). Indirect investment offers a more liquid real estate investment but there is also some scepticism in the literature about the performance of this asset class (Brounen and Eichholtz, 2003;Byrne and Lee, 1995;Clayton and MacKinnon, 2001;Feldman, 2003;Georgiev et al, 2003).…”

Section: Introductionmentioning

confidence: 96%

Time-varying correlation between stock market returns and real estate returns

Heaney

Sriananthakumar

2012

Journal of Empirical Finance

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The allocation to property in the multi‐asset portfolio: The evidence and theory reconsidered

Cited by 67 publications

References 28 publications

Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis

Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis

Decision theory and real estate investment: an analysis of the decision‐making processes of real estate investment fund managers

Time-varying correlation between stock market returns and real estate returns

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