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Real Estate in the Real World: Dealing with Non-Normality and Risk in an Asset Allocation Model.
- Source :
- Journal of Real Estate Portfolio Management; Jan-Apr2005, Vol. 11 Issue 1, p37-53, 17p
- Publication Year :
- 2005
-
Abstract
- Quantitative models of asset allocation are increasingly used by institutional commercial real estate investors as a guide for investment strategy. Real estate as an asset class, however, does not conform well to many of the assumptions underlying standard mean-variance optimization. This paper outlines a model of allocation that addresses two important "real world" violations of these assumptions. First, the assumption that returns are normally distributed is relaxed; instead, returns are modeled using a distribution that allows for both the "fat-tailed" behavior and skewness seen in asset returns. Second, an alternative to the traditional MPT optimizer is employed-the so called "downside deviation" model-that better reflects the observed behavior of investors. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 10835547
- Volume :
- 11
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Journal of Real Estate Portfolio Management
- Publication Type :
- Academic Journal
- Accession number :
- 15794032
- Full Text :
- https://doi.org/10.1080/10835547.2005.12089714