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

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Sammanfattning

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.
OriginalspråkEngelska
UtgivningsortGeneva
FörlagSwiss Finance Institute
Volym2012
UtgåvaNo. 22
Antal sidor26
StatusPublicerad - 10.2012
MoE-publikationstypD4 Publicerad utvecklings- eller forskningsrapport eller -utredning

Publikationsserier

NamnSwiss Finance Institute Research Paper Series
FörlagSwiss Finance Institute
Nr.12-22

Nyckelord

  • 512 Företagsekonomi
  • KOTA2012

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