The Role of Real Estate in the Portfolio Allocation Process

REAL ESTATE ECONOMICS, Vol. 24 No. 3

Posted: 13 Sep 1996

See all articles by Jarl G. Kallberg

Jarl G. Kallberg

New York University (NYU) - Department of Finance

Crocker H. Liu

Arizona State University

Abstract

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.

JEL Classification: G11

Suggested Citation

Kallberg, Jarl G. (Jerry) and Liu, Crocker H., The Role of Real Estate in the Portfolio Allocation Process. REAL ESTATE ECONOMICS, Vol. 24 No. 3, Available at SSRN: https://ssrn.com/abstract=9140

Jarl G. (Jerry) Kallberg (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0339 (Phone)
212-995-4233 (Fax)

Crocker H. Liu

Arizona State University ( email )

W.P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-3259 (Phone)
480-965-8539 (Fax)

HOME PAGE: http://www.public.asu.edu/~chliu1

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