Residential Real Estate in a Mixed-Asset Portfolio

28 Pages Posted: 27 Mar 2020

See all articles by Philippe Bertrand

Philippe Bertrand

AMGSM-IAE Aix-en-Provence, Aix Marseille University, CERGAM; KEDGE Business School

Jean-Luc Prigent

University of Cergy-Pontoise - ThEMA

Date Written: June 22, 2017

Abstract

Mixed-asset portfolio optimization consists in determining the best allocation among standard financial assets such as money market accounts, bonds, stocks and real estate asset as well. For this latter kind of asset, computing the optimal weight can be challenging. First, there is the need to specify the kind of real estate included in the portfolio (commercial, industrial, residential, direct, REIT shares). Second, the prices used to calibrate real estate values need to be chosen from alternatives like: appraisal values, actual real estate transactions, repeated sales, indices. In this paper we focus on private residential real estate returns, investigating the optimal weight of the real asset with respect to standard financial assets. Using quarterly data on housing indices for four European countries, France, Germany, UK and Spain, we address the question of how investing in housing affects the composition of an investor’s portfolio. We show in particular under which conditions we recover the typical 15%-20% real asset allocation.

Keywords: Real Estate Investment, European Residential Real Estate, Mixed Asset

JEL Classification: G11, G17, D14

Suggested Citation

Bertrand, Philippe and Prigent, Jean-Luc, Residential Real Estate in a Mixed-Asset Portfolio (June 22, 2017). Available at SSRN: https://ssrn.com/abstract=3547318 or http://dx.doi.org/10.2139/ssrn.3547318

Philippe Bertrand (Contact Author)

AMGSM-IAE Aix-en-Provence, Aix Marseille University, CERGAM ( email )

Chemin de la Quille - Puyricard
Aix en Provence, 13089
France

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

Jean-Luc Prigent

University of Cergy-Pontoise - ThEMA ( email )

33 boulevard du port
33 bd du Port
F-95011 Cergy CEDEX
France

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