Diversifying in Public Real Estate: The Ex-Post Performance

Journal of Asset Management, Forthcoming

Posted: 16 Jan 2008

See all articles by Carolina Fugazza

Carolina Fugazza

University of Torino -Department of Economics ESOMAS; Center for Research on Pensions and Welfare Policies

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; CEPR; EGCI; Netspar

Massimo Guidolin

Bocconi University, Dept. of Finance; Bocconi University - CAREFIN - Centre for Applied Research in Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2008

Abstract

We calculate the ex-post, realized portfolio performance for an investor who diversifies among U.S. stocks, bonds, real estate indirect investment vehicles (E-REITS), and cash. Simulations are performed for two alternative asset allocation frameworks - classical and Bayesian - and for scenarios involving two different samples and six different investment horizons. Interestingly, the ex-post welfare cost of restricting portfolio choice to traditional financial assets (i.e., stocks, bonds, and cash) only is found to be positive in all scenarios for a Bayesian investor. On the contrary, substitution of E-REITS for stocks in optimal portfolios turns out to reduce ex-post portfolio performance over the nineties and for a Classical investor who ignores parameter estimation uncertainty.

Keywords: Optimal asset allocation; Real estate; Parameter uncertainty; Out-of-sample performance

JEL Classification: G11, L85

Suggested Citation

Fugazza, Carolina and Nicodano, Giovanna and Guidolin, Massimo, Diversifying in Public Real Estate: The Ex-Post Performance (January 12, 2008). Journal of Asset Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1083131

Carolina Fugazza

University of Torino -Department of Economics ESOMAS ( email )

Torino
Italy

Center for Research on Pensions and Welfare Policies ( email )

Torino
Italy

Giovanna Nicodano

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
Italy
390116705006 (Phone)

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

CEPR ( email )

London
United Kingdom

EGCI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Massimo Guidolin (Contact Author)

Bocconi University, Dept. of Finance ( email )

Via Roentgen, 1
2nd floor
Milan, MI 20136
Italy

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti 25
Milan, 20136
Italy

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