Property-Type Diversification in Real Estate Portfolios: Multi-Period Return Measures vs Single-Period Return Measures

Petros Sivitanides

Journal of Real Estate Portfolio Management, 1996, vol. 2, issue 2, 127-140

Abstract: Executive Summary. This study utilizes historical NCREIF data to calculate three series of internal rates-of-return for four property types. These estimates are subsequently used for the derivation of return and risk measures that are compared to respective measures derived on the basis of annual returns. Both measures are eventually used in combination with the mean-variance model for the derivation of optimal allocations across property types. The results suggest that the use of annual returns, as opposed to IRRs, in asset allocation models, may lead to overestimation of expected returns, risks and diversification benefits of optimal portfolios, as well as to inefficient or suboptimal allocations of funds across property types.

Date: 1996
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DOI: 10.1080/10835547.1996.12089529

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