Real Estate Return Correlations: Real-World Limitations on Relationships Inferred from NCREIF Data

Richard A Graff and Michael Young

The Journal of Real Estate Finance and Economics, 1996, vol. 13, issue 2, 42 pages

Abstract: Correlation estimates for returns between individual properties are subject to large inherent uncertainties due to limits on the amount of data that is likely to be available for the foreseeable future. After allowance for correlation sampling error, it is impossible to distinguish on an ex ante basis between the risk-reduction capabilities of mean-variance portfolio selection models and naive diversification without regard to properly type or geographical location. The na*ve portfolio diversification strategies of typical institutional real estate portfolio managers are rational responses to limitations on the informational content of statistical analyses of historical real estate data. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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