TY - BOOK
T1 - The Effect of Lock-Ups on the Suggested Real Estate Portfolio Weight
AU - Hoesli, Martin
AU - Liljeblom, Eva
AU - Löflund, Anders
PY - 2012/10
Y1 - 2012/10
N2 - 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 itex 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.
AB - 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 itex 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.
KW - 512 Business and Management
KW - Asset Allocation; Illiquidity; Lock-Up; Multi-period Portfolio Optimization; REITs
KW - KOTA2012
M3 - Commissioned report
VL - 2012
T3 - Swiss Finance Institute Research Paper Series
BT - The Effect of Lock-Ups on the Suggested Real Estate Portfolio Weight
PB - Swiss Finance Institute
CY - Geneva
ER -