Real Estate in the Real World: Dealing with Non-Normality and Risk in an Asset Allocation Model

Mark Coleman and Asieh Mansour

Journal of Real Estate Portfolio Management, 2005, vol. 11, issue 1, 37-53

Abstract: Executive Summary. 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.

Date: 2005
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10835547.2005.12089714 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:repmxx:v:11:y:2005:i:1:p:37-53

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/repm20

DOI: 10.1080/10835547.2005.12089714

Access Statistics for this article

Journal of Real Estate Portfolio Management is currently edited by Peng Liu and Vivek Sah

More articles in Journal of Real Estate Portfolio Management from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().