Real Estate Within the Asset Allocation Mix
GRIN Verlag, 2009 - 56 pages
Seminar paper from the year 2007 in the subject Business economics - Miscellaneous, grade: 1,3, European Business School - International University Schloss Reichartshausen Oestrich-Winkel, language: English, abstract: Constructing smart portfolios is the key goal of every investor regardless of the risk aversion. Accessible investments for investors are for instance stocks, bonds, treasury bills, and real estate. According to Seiler, Webb, and Myer (1999, p. 163) "real estate asset management has been and will continue to be a topic of great interest." In the year 1971 U.S. public real estate had a total market capitalization of US$1.4bn, while in 2006 public real estate had a market capitalization of US$438bn (National Association of Real Estate Investment Trusts [NAREIT], 2007, p. 1). The U.S. private real estate index has more than tripled from US$84bn in market value in the first quarter of 2001 to US$266m in the first quarter of 2007 (National Council of Real Estate Investment Fiduciaries [NCREIF],2007, p. 1. It is obvious that the real estate market has been growing incredibly and real estate has became more and more important as an investment opportunity. However, all available data on ownership of real estate show that pension funds hold 3.5% to 4.0% of their total assets in real estate (Chiochetti, SA-AADU, & Shilling, 1999, p. 193). Optimal allocation seems to be a problem. Another point is that some degree of diversification can be achieved without real estate. So why should investors hold real estate in their portfolios? Does real estate outperform stock and bond returns? What risks are linked with real estate investments? The aim of this paper is to provide the reader with a deep insight into the real estate investment discussion and to present the advantages and disadvantages of real estate in a mixed-asset portfolio. In a nutshell, at the end of this paper the reader should be able to decide, whether real estate investment is justifiable or not
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absolute return level allocation to real Arbitrage Asset Allocation Mix asset class based on appraisal capital market securities CAPM common stocks compound return correlation coefficient direct real estate disadvantages of real diversification benefits efficient frontier equity REITs Estate Appraisal Data estate factor premium Estate Investment Fiduciaries Estate Investment Trusts estate might warrant Hoesli inflation hedge inflation rate information costs Investing in Real Lekander less risk averse market capitalization market portfolio mixed-asset portfolio Modern Portfolio Theory NAREIT index number of market optimal allocation outperforms stocks period from 1973 Perverse hedges portfolio to capture private real estate public real estate Real Estate Appraisal real estate based real estate factor real estate indexes Real Estate Investment real estate market real estate returns REIT returns risk and return risk preference Seiler standard deviation stocks and bonds theoretical fundamentals transaction and information transaction costs U.S. direct real unsystematic risk volatility Ziobrowski and Ziobrowski