The Effect of Lock-Ups on the Suggested Real Estate Portfolio Weight

Research output: Book/ReportCommissioned report


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, reducing their diversification benefits, the ex ante knowledge of a lock-up in an asset class offering diversification benefits in bull markets (Hung et al., 2008) may reduce the optimal weight an investor wishes to put in it
ex ante. Using the dynamic multiperiod portfolio policies by Brandt and Santa-Clara (2006), and introducing a lock-up in line with 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
Place of PublicationGeneva
PublisherSwiss Finance Institute
EditionNo. 22
Number of pages26
Publication statusPublished - 10.2012
MoE publication typeD4 Published development or research report or study

Publication series

NameSwiss Finance Institute Research Paper Series
PublisherSwiss Finance Institute


  • 512 Business and Management
  • Asset Allocation; Illiquidity; Lock-Up; Multi-period Portfolio Optimization; REITs
  • KOTA2012


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