 |
 |
Using Capital Market's Value Cycles in Allocating to Real Estate vs. Stocks or Bonds Ronald W. Kaiser Traditionally, asset allocation involves efficient frontiers of forecasted returns and risks. The known limitations to this approach involve the non-normality of real estate return distributions, the definition of volatility in appraisal-based returns and the sluggish liquidity in real estate. As a result, most institutional investors resort to "experience and intuition" in determining the proper asset mix. This article analyzes fundamental value measures since 1951: real estate cap rates, stock market earnings yields and ten-year bond yields. A simple model is constructed to allocate portfolios between stocks and real estate and between bonds and real estate, taking into account the inherent time delays and transaction costs. The conclusion is that fundamental value strategies can offer superior return/risk rations to any of the single asset comparisons.   Return to the top of this web page |
Return Attribution for Commercial Real Estate Investment Management Yougue Liang, Robert Hess, David Bradford, and Willard McIntosh In this study, we offer a refinement to a return attribution method proposed by the pioneers of return attribution analysis. Returns for the aggregate portfolio are decomposed into selection and allocation contributions as originally presented. We introduce the use of a neutral effect, which aggregates to zero at the portfolio level, that insures proper interpretation of the decomposition of the sector returns of the portfolio into selection and allocation contributions. this refinement is particularly relevant to private real estate investment, where portfolio performance is measured against both an aggregate benchmark and benchmarks for sub-sectors. In addition, we suggest a methodology for performing multi-period attribution analysis. Further, we offer a new presentation format to report both single and multi-period return attributes. Return to the top of this web page |
Optimal Diversification within Mixed-Asset Portfolios using a Conditional Heteroskedasticity Approach: Evidence from the U.S. and the U.K. Michael Giliberto, Foort Hamelink, Martin Hoesli, and Bryan MacGregor In this article, portfolio allocation strategies based on a threshold autoregressive conditional heteroskedasticity model (QTARCH) are constructed for the United States and the United Kingdom and compared to a conventional asset allocation. Our procedure is based on partitioning the historical data into 'states of the world', which are used to produce expectations of return and risk. Several approaches are developed to partition an initial in-sample period (1978 - 1983), using quarterly asset returns and economic data. These partitions are then used to test out-of-sample strategies for the next quarter. Although the conditional results are sensitive to the method of partitioning, we show that the approach can improve portfolio performance in both countries and that most of the performance improvement stems from using conditional variances-covariances. Return to the top of this web page |
Price Causality between Adjacent Housing Markets within a Metropolitan Area: A Case Study Ling T. He and Robert C. Winder Using quarterly housing price data, this study investigates the price relationships and the price causality between three adjacent housing markets in the Hampton Roads region in Virginia. The results of the cointegration tests indicate stable long-run equilibrium price relationships between the adjacent housing markets. the results of the Geweke causality tests further suggest a bidirectional price causality between two adjacent housing markets that share similarities in changes in per capita income and single-family building permits. Return to the top of this web page |
An Examination of the Inflation Hedging Ability of Irish Real Estate Simon Stevenson and Louis Murray This article examines the inflation hedging ability of the commercial real estate sector in the Republic of Ireland. Tests using the conventional Fama and Schwert (1977) model are conducted, together with cointegration and causality tests. The data is initially analyzed over the period 1985 to 1996. Regression results do not provide any evidence to support the hypothesis that real estate acts as an effective inflation hedge. Since the study period coincides with a period of relative stability in Irish inflation rates, the tests are rerun using annual data from 1969, however the results are unaltered. A further finding was that, using virtually all models, real estate offers a significant positive real return. Cointegration tests, examining long term hedging ability, similarly find no evidence to support the hypothesis. However, the causality models to indicate that real estate leads inflation. Return to the top of this web page |
Price Indexes for Commercial and Office Properties: An Application of the Assessed Value Method G. Donald Jud and Daniel T. Winkler This study constructs a nonresidential, constant-quality price index, based on the assessed-value approach, and adjusts for the possibility for sample selection bias. The sample consists of a large sampe of commercial and office properties located in Charlotte, N.C. during 1981 - 1994. Statistical tests for sample selection bias suggest that bias is present in the office sample, but not in the commercial property sample. For office properties, the selection process is such that higher prices prevail for equivalent office properties that sell relative to those that do not sell. The estimated price indexes indicate average appreciation rates of 16.2% for commercial property and 9.9% for office property. Return to the top of this web page |
An Optimal Control Approach to Market Timing in the Singapore Property Market Teck Chai Chin and Geofrey T. Mills We investigate an optimal control approach to market timing strategy to assist property investors in deciding the allocation of investment funds between the risk-free savings deposit and the comparatively risky property investment. This strategy generates recommended investment actions, namely, buy, hold, sell and wait, with the objective to attain superior investment returns. The investment performance of this market timing strategy is compared to that of the buy-and-hold strategy. Results from the simulation study for the twenty-year period from 1977:1 to 1996:4 indicates that the proposed market timing strategy is capable of achieving superior investment returns in the Singapore property market. Return to the top of this web page |
Characteristics of a Full-Disclosure, Transaction-Based Index of Commercial Real Estate David H. Downs and Barrett A. Slade This study addresses the characteristics of a transaction-based index of commercial real estate as reported in a full-disclosure market. Prior research on transaction-based indices has enumerated various shortcomings for commercial real estate markets. this study circumvents many of these problems by using a large data set of commercial property transactions obtained for the Phoenix, Arizona metropolitan statistical area. The empirical analysis demonstrates that investors stand to gain considerable insight by comparing full-disclosure, transaction-based indices with voluntary-disclosure, appraisal-based indices. The results suggest that full-disclosure indices avoid some of the institutional biases associated with other benchmarks of commercial real estate performance. In addition, some public policy issues emerge on the role of state mandated disclosure rules. Return to the top of this web page |
|
