The Impact of Real Estate on the Terminal Wealth of U.K. Mixed-Asset Portfolios: 1972-2001

Peter Byrne and Stephen Lee

Journal of Real Estate Portfolio Management, 2005, vol. 11, issue 2, 133-145

Abstract: Executive Summary. This paper uses United Kingdom annual data for the period 1972-2001 to test whether including real estate in the mixed-asset portfolio not only reduces ex-post portfolio risk but also enhances portfolio terminal wealth (TW) and/or reduces the variability of TW. The conventional allocation problem can therefore be recast: Does real estate enhance the TW of the mixed-asset portfolio and/or reduce the variability of the TW? The results show that including real estate has a variety of impacts depending on the asset replaced and the percentage replaced. Replacing bonds leads to an increase in TW. Replacing equities considerably reduces TW. Replacement of both bonds and equities gives intermediate results, influenced chiefly by the performance of equities. Including real estate appears in most cases to offer an improvement in TW and a reduction in TWSD compared with the base portfolio (without real estate).

Date: 2005
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DOI: 10.1080/10835547.2005.12089722

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