Accessibility navigation

Property funds: how much diversification is enough?

Lee, S. L., (2006) Property funds: how much diversification is enough? Working Papers in Real Estate & Planning. 06/06. Working Paper. University of Reading, Reading. pp20.

[img] Text - Published Version
· Please see our End User Agreement before downloading.


It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.


t is well known that when assets are randomly-selected and combined in equal proportions in a portfolio, the risk of the portfolio declines as the number of different assets increases without affecting returns. In other words, increasing portfolio size should improve the risk/return trade-off compared with a portfolio of asset size one. Therefore, diversifying among several property funds may be a better alternative for investors compared to holding only one property fund. Nonetheless, it also well known that with naïve diversification although risk always decreases with portfolio size, it does so at a decreasing rate so that at some point the reduction in portfolio risk, from adding another fund, becomes negligible. Based on this fact, a reasonable question to ask is how much diversification is enough, or in other words, how many property funds should be included in a portfolio to minimise return volatility.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:20742
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.


Downloads per month over past year

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation