Is There a Real Estate Allocation Puzzle?

Cheng, Ping; Lin, Zhenguo; Liu, Yingchun

doi:10.3905/jpm.2013.39.5.061

Cited by 2 publications

(1 citation statement)

References 37 publications

(41 reference statements)

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“…Their analyses are performed relying on the investment risk model of Lin and Vandell (2007) taking into account illiquidity. Cheng, Lin, & Liu (2013) propose adjusting the Modern Portfolio Theory (MPT) framework for explicitly taking into account the horizon-dependent performance, the liquidity risk and the high transaction costs specific to real estate investments. They conclude that the optimal allocation to direct real estate should lie between 3% and 9%, while the holding period should be between two and six years (see also Cheng, Lin, & Liu, 2010).…”

Section: Introductionmentioning

confidence: 99%

Property Tax and Price-to-Rent Ratio in China: A Counterfactual Analysis

Xiang¹,

Gu²

2019

26th Annual European Real Estate Society Conference

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This research investigates the role of real estate in a mixed-asset portfolio for various investment horizons. Using U.S. data spanning almost three decades, we report that medium to long term investors should allocate 20% of their portfolio to direct real estate. In contrast, short term investors should focus on open-end core funds, which are found to be good substitutes for direct investments. REITs are usually of limited interest as a substitute for direct real estate, but they could be used in conjunction with direct investments for medium and long term horizons, as they partly substitute for stocks. Value-added and opportunistic closed-end funds are found to be imperfect substitutes for direct investments. Finally, we find that including commodities, private equity, and hedge funds in a portfolio enhances its performance but the allocation to real estate barely changes.

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Section: Introductionmentioning

confidence: 99%