Abstract
What is the proper allocation to private real estate in a mixed-asset portfolio? For years, the academic community and industry practitioners have been at odds over this question. The former advises higher allocations, while the latter practices lower.
The authors of Is There a Real Estate Asset Allocation Puzzle? provide a formal model that for the first time extends Modern Portfolio Theory (MPT) to include the complex traits of private real estate. It finds that practitioners have been on the right track!
The article, co-written by Ping Cheng , Zhenguo Lin and Yingchun Liu , appeared in The Journal of Portfolio Management (Special Real Estate Issue) (6th Edition).
In this Practical Applications report, co-author Cheng, Associate Professor of Finance at Florida Atlantic University in Boca Raton, describes the model and explains how institutional investors, portfolio managers and heads of research can use it.
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