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The Role of Real Estate in the Portfolio Allocation Process

  • Jarl G. Kallberg
  • Crocker H. Liu
  • D. Wylie Greig
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    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. Copyright American Real Estate and Urban Economics Association.

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    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 24 (1996)
    Issue (Month): 3 ()
    Pages: 359-377

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    Handle: RePEc:bla:reesec:v:24:y:1996:i:3:p:359-377
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