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Real estate in the mixed‐asset portfolio: the question of consistency

Stephen Lee (Centre for Real Estate Research (CRER), The University of Reading Business School, Reading, UK)
Simon Stevenson (Faculty of Finance, Cass Business School, City University, London, UK)

Journal of Property Investment & Finance

ISSN: 1463-578X

Publication date: 1 March 2006



This paper seeks to address the question of consistency, regarding the allocation of real estate in the mixed‐asset portfolio.


To address the question of consistency the allocation of real estate in the mixed‐asset portfolio was calculated over different holding periods varying from five to 25 years. For each portfolio and holding period, the percentage of portfolios with real estate was computed, as was the average real estate allocation in the optimum solution. Then, the risk and return differences between the two efficient frontiers, with and without real estate, were calculated to estimate real estate's marginal impact on portfolio performance.


First, the results suggest strongly that real estate has possessed the attribute of consistency in optimised portfolios. Second, the benefits from including real estate in the mixed‐asset portfolio tend to increase as the investment horizon is extended. Third, the position of real estate changes across the efficient frontier from its return enhancing ability to its risk‐reducing facility. Finally, the results show that the gain in return from adding real estate to the mixed‐asset portfolio is typically less compared with the reduction in portfolio risk.

Practical implications

The results highlight a number of issues in relation to the role of direct real estate within a mixed‐asset framework. In particular, the rationale behind the inclusion of real estate in the mixed‐asset portfolio depends on the length of the holding period of the investor and their position on the efficient frontier.


The study examines the attractiveness of direct real estate in the context of mixed‐asset portfolio.



Lee, S. and Stevenson, S. (2006), "Real estate in the mixed‐asset portfolio: the question of consistency", Journal of Property Investment & Finance, Vol. 24 No. 2, pp. 123-135.



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