The effect of lock-ups on suggested real estate portfolio weight

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We test relative illiquidity, exemplified through a temporary lock-up, as a partial explanation for the gap between theoretical and empirical weights for real estate in a multi-asset portfolio. Since asset correlations are known to increase in bear markets, which reduce their diversification benefits, the ex-ante knowledge of a lock-up in an asset class that offers diversification benefits in bull markets (Hung et al., 2008) may reduce the optimal weight that an investor wishes to put in it ex-ante. By using dynamic multiperiod portfolio policies by Brandt and Santa-Clara (2006), and introducing a lock-up in line as per de Roon et al. (2009), we study the effects of a partial lock-up on the weight for REITs in a U.S. stock and bond portfolio. We find support for our prediction, in the form of lower weights for the illiquid asset once a lock-up is introduced.
Original languageEnglish
Peer-reviewed scientific journalInternational Real Estate Review
Issue number1
Pages (from-to)1-22
Number of pages22
Publication statusPublished - 2014
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • KOTA2014


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