Diversifying in public real estate: The ex-post performance

Carolina Fugazza, Massimo Guidolin and Giovanna Nicodano

Journal of Asset Management, 2008, vol. 8, issue 6, No 3, 373 pages

Abstract: Abstract We calculate the ex-post, realised portfolio performance for an investor who diversifies among US stocks, bonds, real estate indirect investment vehicles (E-REITS), and cash. Simulations are performed for two alternative asset allocation frameworks — classical and Bayesian — and for scenarios involving two different samples and six different investment horizons. Interestingly, the ex-post welfare cost of restricting portfolio choice to traditional financial assets (ie, stocks, bonds, and cash) is only found to be positive in all scenarios for a Bayesian investor. On the contrary, substitution of E-REITS for stocks in optimal portfolios turns out to reduce ex-post portfolio performance over the nineties and for a Classical investor who ignores parameter estimation uncertainty.

Keywords: optimal asset allocation; real estate; parameter uncertainty; out-of-sample performance (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/palgrave.jam.2250089

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