Limits to Diversification: Tail Risks in Real Estate Portfolios

摘要: This study addresses real estate’s riskiness from a distributional standpoint. Several studies have found that estate returns are best modeled with stable Paretian distributions. is confirmed using National Council of Real Estate Investment Fiduciaries individual property returns, but the first application distributions to commercial portfolio provides evidence diversification effects ultimately reduce tailedness and, surprisingly, drive tail parameter toward normality. Further insight provided by highlighting importance complete view, beyond pure considerations. Even when parameters reflect normality, return risk may still be tremendous, and it can only reduced in portfolios (and certain, time-dependent extent).