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How should unsmoothing affect pension plan asset allocation?

Philip Booth (Sir John Cass Business School, City of London, London, UK)
George Matysiak (CB Hillier Parker and Sir John Cass Business School, City of London, London, UK)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 1 December 2004



Examines the impact of using “unsmoothing” techniques on real estate data to take pension‐plan asset‐allocation decisions. It is generally believed that valuation‐based real estate indices give rise to returns figures which are “smoothed” versions of the underlying transaction prices. Unsmoothing techniques can be used to develop real estate return data series that are believed to be a more accurate representation of underlying transaction prices. If this is done, the resulting data reveal greater volatility of real estate returns. When such data are applied to portfolio selection models, they often reveal a reduced allocation to real estate in efficient portfolios. Looks at the impact of unsmoothing data when taking pension‐plan asset‐allocation decisions. Finds here that the unsmoothed data are more closely correlated with pension plan liabilities. As a result, efficient pension plan portfolios sometimes contain more real estate, rather than less. In general, there is little change in the efficient real estate allocation. These results are very important. They reveal that so‐called “valuation smoothing” may distort property investment decisions less than is commonly thought.



Booth, P. and Matysiak, G. (2004), "How should unsmoothing affect pension plan asset allocation?", Journal of Property Investment & Finance, Vol. 22 No. 6, pp. 472-483.



Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

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