Size and property portfolio diversification in the modern portfolio theory context

Maciej Mañkowski () and Mateusz Miko³ajczak
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Maciej Mañkowski: Uniwersytet Ekonomiczny w Krakowie, doktorant na Wydziale Ekonomii i Stosunków Miêdzynarodowych
Mateusz Miko³ajczak: Polska Akademia Nauk, Instytut Nauk Geologicznych, Oœrodek Badawczy w Krakowie

World of Real Estate Journal (Swiat Nieruchomosci), 2013, issue 85, 57-63

Abstract: This is the first article in Poland that discusses the problemof impact of property portfolio size on investment risk reduction. The rates of return and the risk of obtaining them for 112 properties of various designations in Cracow were analysed in the context of Modern Portfolio Theory. A variety of portfolios were designed, using different methods of selecting real estate. It was found that a greater number of portfolio components reduce the risk more efficiently than a smaller number of portfolio components. Studies have shown that the portfolio construction approach based on the selection of the most risky assets is characterized by a markedly higher risk compared with other methods (i.e. random selection and averaging). Regardless of the adopted criterion of the selection of components, the most effective risk reduction is in the range of 12-14 properties, and further portfolio size increase is inefficient for investments.

Keywords: diversification; risk reduction; property portfolio; Modern Portfolio Theory; portfolio size (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:kra:journl:y:2013:i:85:p:57-63

DOI: 10.14659/worej.2013.85.08

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