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The return due to diversification of real estate to the US mixed-asset portfolio

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Lee, S., (2003) The return due to diversification of real estate to the US mixed-asset portfolio. Working Papers in Real Estate & Planning. 11/03. Working Paper. University of Reading, Reading. pp12.

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Abstract/Summary

Booth and Fama (1992) observe that the compound return and so the terminal wealth of a portfolio is greater than the weighted average of the compound returns of the individual investments, a difference referred to as the return due to diversification (RDD). Thus assets that offer high RDD should be particularly attractive investments. This paper test the proposition that US direct real estate is such an asset class using annual data over the period 1951-2001. The results show that adding real estate to an existing mixed-asset portfolio increases the compound return and so the terminal wealth of the fund. However, the results are dependent on the percentage allocation to real estate and the asset class replaced.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:21435
Publisher:University of Reading
Publisher Statement:The copyright of each working paper remains with the author. If you wish to quote from or cite any paper please contact the appropriate author; in some cases a more recent version of the paper may have been published elsewhere.

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