Marketing Period Risk in a Portfolio Context: Theory and Empirical Estimates from the UK Commercial Real Estate Market

Bond, Shaun A.; Hwang, Soosung; Lin, Zhenguo (Len); Vandell, Kerry D.

doi:10.2139/ssrn.876422

Marketing Period Risk in a Portfolio Context: Theory and Empirical Estimates from the UK Commercial Real Estate Market

Cass Business School Research Paper

26 Pages Posted: 20 Jan 2006

See all articles by Shaun A. Bond

Soosung Hwang

Sungkyunkwan University - Department of Economics

Zhenguo (Len) Lin

Florida International University (FIU) - Hollo School of Real Estate

Kerry D. Vandell

University of California, Irvine - Paul Merage School of Business; University of California, Irvine School of Law

There are 2 versions of this paper

Date Written: May 2005

Abstract

The role of selling (or marketing) period uncertainty in understanding risk associated with property investment is examined in this paper. Using an approach developed by Lin and Vandell [2001, 2005] and Lin [2004], combined with a statistical model of UK commercial property transactions, we show that the ex ante level of risk exposure for a commercial real estate investor is around one and a half times that obtained from historical statistics. The risk related to marketing time uncertainty can be reduced by constructing a portfolio. We find that at least 10 properties are necessary to reduce this risk, assuming independence between marketing period risk and price risk. These findings have important implications for mixed-asset portfolio allocation decisions.

Keywords: liquidity risk, commercial real estate

JEL Classification: G11, R33

Suggested Citation: Suggested Citation

Bond, Shaun Alexander and Hwang, Soosung and Lin, Zhenguo and Vandell, Kerry D., Marketing Period Risk in a Portfolio Context: Theory and Empirical Estimates from the UK Commercial Real Estate Market (May 2005). Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=876422 or http://dx.doi.org/10.2139/ssrn.876422