Abstract
This paper departs from the traditional optimisation methods used to evaluate
portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio specific efficiencies average at 85%-91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies.
portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio specific efficiencies average at 85%-91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies.
Original language | English |
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Pages (from-to) | 95-116 |
Journal | Journal of Property Research |
Volume | 35 |
Issue number | 2 |
DOIs | |
Publication status | Published - 8 Dec 2017 |
Bibliographical note
© 2017 Informa UK Limited, publishing as Taylor & Francis. This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of Property Research on 8th December 2017, available online: http://www.tandfonline.com/10.1080/09599916.2017.1410851.Keywords
- diversification
- portfolios
- performance
- real estate
- sector
- regional effects