tailieunhanh - On the risk measures of real estate assets

This paper discusses the need of risk measure of real estate assets and the existing measures. Using the FTSE NAREIT monthly all REITs data from December 1971 to June 2017, this study concludes that the risk of real estate assets is indeed unmeasurable. Therefore, real estate assets performance measure should be based on absolute return or inflation-adjusted absolute return; the returns of real estate assets can be compared with meaningful benchmarks, yet the combination of risk and return does not have a valid benchmark. Prevalent indicators such as Sharpe ratio is a misleading concept that leads to biased weights of real estate assets in a modern portfolio. Furthermore, there are no standard measures of the higher moments for real estate asset returns, as the second moment measure does not deliver a solid foundation. | Journal of Applied Finance Banking vol. 8 no. 1 2018 27-34 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2018 On the Risk Measures of Real Estate Assets Xiaomin Guo1 Abstract This paper discusses the need of risk measure of real estate assets and the existing measures. Using the FTSE NAREIT monthly all REITs data from December 1971 to June 2017 this study concludes that the risk of real estate assets is indeed unmeasurable. Therefore real estate assets performance measure should be based on absolute return or inflation-adjusted absolute return the returns of real estate assets can be compared with meaningful benchmarks yet the combination of risk and return does not have a valid benchmark. Prevalent indicators such as Sharpe ratio is a misleading concept that leads to biased weights of real estate assets in a modern portfolio. Furthermore there are no standard measures of the higher moments for real estate asset returns as the second moment measure does not deliver a solid foundation. JEL classification numbers G11 Keywords Risk Measure Asset price Return Real estate Portfolio management 1 Introduction The real estate assets are no longer regarded as unusual components in a modern portfolio. Though they are still categorized as a subset of alternative assets they are frequently included in the investment processes as assets that bring unique benefits. Such benefits compared to the usual components such as equities bonds or money market instruments in a modern portfolio are greatly valued by asset managers and direct investors. Specifically the advantages that real estate assets bring are widely accepted as the illiquidity premium the absolute return that is independent from market portfolio the potential of inflation hedging and the 1 College of Business Pacific University USA Article Info Received August 26 2017. Revised Septeber 25 2017 Published online January 1 2018 28 Xiaomin Guo income flow brought during the holding period. The developments of

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