Investing for the Long-run in European Real Estate |
| |
Authors: | Carolina Fugazza Massimo Guidolin Giovanna Nicodano |
| |
Institution: | (1) CeRP, Collegio Carlo Alberto, Via Real Collegio, 30 Moncalieri, Turin, 10024, Italy;(2) Federal Reserve Bank of St. Louis Broadway and Locust Sts., PO Box 442, St. Louis, MO 63166-0442, USA;(3) Faculty of Economics, University of Turin, Corso Unione Sovietica, 218bis, Turin, 10134, Italy;(4) Fondazione Collegio Carlo Alberto, Via Real Collegio, 30 Moncalieri, Turin, 10024, Italy |
| |
Abstract: | We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds,
real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different
risk aversion levels, horizons, and statistical models capturing predictability in risk premia. Importantly, under one of
the scenarios, the investor takes into account the parameter uncertainty implied by the use of estimated coefficients to characterize
predictability. We find that real estate ought to play a significant role in optimal portfolio choices, with weights between
12 and 44%. Under plausible assumptions, the welfare costs of either ignoring predictability or restricting portfolio choices
to traditional financial assets only are found to be in the order of 150–300 basis points per year. These results are robust
to changes in the benchmarks and in the statistical framework.
|
| |
Keywords: | Optimal asset allocation Real estate Predictability Parameter uncertainty |
本文献已被 SpringerLink 等数据库收录! |
|