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The marginal benefit of diversification in commercial real estate portfolios

Lee, S. L., (2005) The marginal benefit of diversification in commercial real estate portfolios. Working Papers in Real Estate & Planning. 04/05. Working Paper. University of Reading, Reading. pp11.

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The number of properties to hold to achieve a well-diversified real estate property portfolio presents a puzzle, as the estimated number is considerably higher than that seen in actual portfolios. However, Statman (1987) argues that investors should only increase the number of holdings as long as the marginal benefits of diversification exceed their costs. Using this idea we find that the marginal benefits of diversification in real estate portfolios are so small that investors are probably rational in holding small portfolios, at least as far as the reduction in standard deviation is concerned.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:20956
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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