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Asset allocation versus entrepreneurial decisions in real estate investment

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  • Armonat, Stefan
  • Pfnür, Andreas

Abstract

(Abstract) Although the application of capital market theory is questionable in real estate investment, many institutional investors still perform asset allocation with historic real estate data. Entrepreneurial investment analysis relies on a different information setting. To date it is unclear which approach, or what data set, offers the most efficient solutions for the use of capital. In order to evaluate policy recommendations for decision making in pension fund real estate investment, we describe an empirical investigation of the investment environment in Germany. We find that current market information restricts the application of capital market models. While the use of investment models and capital market models has been strictly separated, there is no theoretically justified reason for this. Investors have to be aware that they can determine performance parameters for real estate only as approximations. Therefore, it may be fruitful to consider and compare alternative parameter estimates for determining optimal real estate allocations in pension fund investment.

Suggested Citation

  • Armonat, Stefan & Pfnür, Andreas, 2003. "Asset allocation versus entrepreneurial decisions in real estate investment," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35582, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
  • Handle: RePEc:dar:wpaper:35582
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/35582/
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    File URL: http://www.real-estate.bwl.tu-darmstadt.de/media/bwl9/dateien/arbeitspapiere/wp_30_asset_allocation.pdf
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    References listed on IDEAS

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    6. Pfnür, Andreas & Schaefer, Christina, 2001. "Evaluating corporate real estate with real options," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35512, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
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    9. Geltner, David Michael, 1991. "Smoothing in Appraisal-Based Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 4(3), pages 327-345, September.
    10. Michael S. Young & Susan Annis, 2002. "Performance Attributions: Pure Theory Meets Messy Reality," Journal of Real Estate Research, American Real Estate Society, vol. 23(1/2), pages 3-28.
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    12. Ciochetti, Brian A & Sa-Aadu, J & Shilling, James D, 1999. "Determinants of Real Estate Asset Allocations in Private and Public Pension Plans," The Journal of Real Estate Finance and Economics, Springer, vol. 19(3), pages 193-210, November.
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