Abstract
The results quantify the number of assets and amount of money needed to construct both 'balanced' and 'specialist' property portfolios by direct investment. Target numbers will vary according to the objectives of investors and the degree to which tracking error is tolerated. The top-level results are consistent with previous work, showing that a large measure of risk reduction can be achieved with portfolios of 30-50 properties, but full diversification of specific risk can only be achieved in very large portfolios. However, the paper extends previous work by demonstrating on a single, large dataset the implications of different methods of calculating risk reduction, and also by showing more disaggregated results relevant to the construction of specialist, sector-focussed funds.
| Original language | English |
|---|---|
| Pages (from-to) | 355-375 |
| Number of pages | 21 |
| Journal | Journal of Property Research |
| Volume | 24 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - Dec 2007 |
Fingerprint
Cite this
Risk Reduction and Diversification in UK Commercial Property Portfolios. / Callender, Mark; Devaney, Steven Patrick; Sheahan, Angela; Key, Tony.
In: Journal of Property Research, Vol. 24, No. 4, 12.2007, p. 355-375.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Risk Reduction and Diversification in UK Commercial Property Portfolios
AU - Callender, Mark
AU - Devaney, Steven Patrick
AU - Sheahan, Angela
AU - Key, Tony
PY - 2007/12
Y1 - 2007/12
N2 - The issue of diversification in direct real estate investment portfolios has been widely studied in academic and practitioner literature. Most work, however, has been done using either partially aggregated data or data for small samples of individual properties. This paper reports results from tests of both risk reduction and diversification that use the records of 10,000+ UK properties tracked by Investment Property Databank. It provides, for the first time, robust estimates of the diversification gains attainable given the returns, risks and cross-correlations across the individual properties available to fund managers. The results quantify the number of assets and amount of money needed to construct both 'balanced' and 'specialist' property portfolios by direct investment. Target numbers will vary according to the objectives of investors and the degree to which tracking error is tolerated. The top-level results are consistent with previous work, showing that a large measure of risk reduction can be achieved with portfolios of 30-50 properties, but full diversification of specific risk can only be achieved in very large portfolios. However, the paper extends previous work by demonstrating on a single, large dataset the implications of different methods of calculating risk reduction, and also by showing more disaggregated results relevant to the construction of specialist, sector-focussed funds.
AB - The issue of diversification in direct real estate investment portfolios has been widely studied in academic and practitioner literature. Most work, however, has been done using either partially aggregated data or data for small samples of individual properties. This paper reports results from tests of both risk reduction and diversification that use the records of 10,000+ UK properties tracked by Investment Property Databank. It provides, for the first time, robust estimates of the diversification gains attainable given the returns, risks and cross-correlations across the individual properties available to fund managers. The results quantify the number of assets and amount of money needed to construct both 'balanced' and 'specialist' property portfolios by direct investment. Target numbers will vary according to the objectives of investors and the degree to which tracking error is tolerated. The top-level results are consistent with previous work, showing that a large measure of risk reduction can be achieved with portfolios of 30-50 properties, but full diversification of specific risk can only be achieved in very large portfolios. However, the paper extends previous work by demonstrating on a single, large dataset the implications of different methods of calculating risk reduction, and also by showing more disaggregated results relevant to the construction of specialist, sector-focussed funds.
U2 - 10.1080/09599910801916279
DO - 10.1080/09599910801916279
M3 - Article
VL - 24
SP - 355
EP - 375
JO - Journal of Property Research
JF - Journal of Property Research
SN - 0959-9916
IS - 4
ER -