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Book part
Publication date: 23 April 2005

Abstract

Details

Modelling the Riskiness in Country Risk Ratings
Type: Book
ISBN: 978-0-44451-837-8

Article
Publication date: 8 May 2009

Willem G. Keeris and Ruben A.R. Langbroek

In order to take properly founded investment decisions, the anticipated value creation of a property investment should be identified by the investor. Because usual methods of…

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Abstract

Purpose

In order to take properly founded investment decisions, the anticipated value creation of a property investment should be identified by the investor. Because usual methods of analysis for determining the return/risk profile produce an inaccurate and incomplete picture, the purpose of this paper is to propose a number of improvements.

Design/methodology/approach

By examining the framework on which most used statistical risk analyses are based, improvements can be made, based on known, but not commonly used approaches. These improvements give a more satisfying risk analysis result, in which chances are also made visible.

Findings

Main principle of use is the downside risk approach, which only takes into account the negative deviations from self‐determined return criteria. The analysis is then based on four new created ratios, which collectively provide a better and more complete picture of the return/risk profile as a whole.

Practical implications

The ratios address risk from a downside perspective, but they also take into account the chances for investors to meet the return criteria, which provide the upside potential for the investments. Furthermore, the ratios express risk in terms of real volatility of the actual return. And last, they provide improvement of the entire return/risk profile, which therefore highlights the value creation achieved by the management.

Originality/value

By using the proposed ratios, risks and chances associated with property investments can be better quantified, thus producing a return/risk profile that paints a more realistic picture of the degree of value creation for investors.

Details

Journal of European Real Estate Research, vol. 2 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 1 January 1995

Lakshman A. Alles

The theory of finance is built around return and risk concepts and a basic tenet of finance is that there is a trade off between the risk and returns of assets. As such the…

Abstract

The theory of finance is built around return and risk concepts and a basic tenet of finance is that there is a trade off between the risk and returns of assets. As such the measurement of risk goes to the very core and foundation of the theory of finance. Given that the main theories of finance have been maturing over several decades of discussion and debate, one would imagine that a concept as fundamental as the measurement of risk would be a well settled issue by now. On the contrary, the recent finance literature shows ample evidence that risk measurement and risk concepts are drawing continued scrutiny from academic researchers. This is because there are several alternative, and competing ways in which risk can be conceived of and it is not clear which of the alternative concepts is most appropriate. Each concept of risk can be measured or estimated in several ways as well. Estimation methods can be diverse in their precision. Risk measurement can be further complicated by the fact that risk is not a static feature. Risk changes over time. Whether risk changes can be modelled satisfactorily is a major challenge taken up by researchers.

Details

Managerial Finance, vol. 21 no. 1
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 10 July 2009

David Higgins and Boon Ng

This paper aims to gain exposure to Australian real estate investment trusts (A‐REITs). Many institutional investors make use of securitised property funds as they employ…

1203

Abstract

Purpose

This paper aims to gain exposure to Australian real estate investment trusts (A‐REITs). Many institutional investors make use of securitised property funds as they employ experienced property professionals with specialist knowledge of underlying property fundamentals, direct property markets and the 30‐plus A‐REITs. As securitised property funds operate in a competitive environment, investment performance benchmarks are important.

Design/methodology/approach

To add to the familiar risk and return benchmarks, the risk adjusted performance (RAP) measure first outlined by Modigliani and Modigliani provides an additional and valuable return measure to a definite level of risk. This research selected 16 wholesale securitised property funds each with seven years of continuous quarterly total return data.

Findings

Overall a large proportion of the selected funds (14 out of 16), on average, outperformed the market benchmark return (14.53 per cent) with the worst fund marginally under‐performing the index by 0.54 per cent. In contrast, the annualised RAP measure highlighted the differences in the securitised property fund returns for a given level of risk, with a wide 12.90‐16.66 per cent range. To achieve this uniform level of risk, five securities property funds had to replace up to 21 per cent of their property portfolio with a risk‐free asset (90 day bank bills). The RAP measure also decomposes the excess returns above the benchmark. In this instance, the securitised property funds outperformance was from a mixture of active portfolio selection and simply taking on additional risk exposure.

Originality/value

The research demonstrated the benefits of analysing securitised property funds beyond the standard return and risk measures. The RAP approach provides a measure of return for a definite level of risk with the benchmark excess attributed to portfolio selection and additional risk. This performance information can provide valuable additional information for an astute investor.

Details

Journal of Property Investment & Finance, vol. 27 no. 4
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 March 2006

Stephen Lee and Simon Stevenson

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

4549

Abstract

Purpose

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

Design/methodology/approach

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.

Findings

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.

Originality/value

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

Details

Journal of Property Investment & Finance, vol. 24 no. 2
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 8 June 2015

Dale Domian, Rob Wolf and Hsiao-Fen Yang

The home is a substantial investment for most individual investors but the assessment of risk and return of residential real estate has not been well explored yet. The existing…

1721

Abstract

Purpose

The home is a substantial investment for most individual investors but the assessment of risk and return of residential real estate has not been well explored yet. The existing real estate pricing literature using a CAPM-based model generally suggests very low risk and unexplained excess returns. However, many academics suggest the residential real estate market is unique and standard asset pricing models may not fully capture the risk associated with the housing market. The purpose of this paper is to extend the asset pricing literature on residential real estate by providing improved CAPM estimates of risk and required return.

Design/methodology/approach

The improvements include the use of a levered β which captures the leverage risk and Lin and Vandell (2007) Time on Market risk premium which captures the additional liquidity risk of residential real estate.

Findings

In addition to presenting palatable risk and return estimates for a national real estate index, the results of this paper suggest the risk and return characteristics of multiple cities tracked by the Case Shiller Home Price Index are distinct.

Originality/value

The results show higher estimates of risk and required return levels than previous research, which is more consistent with the academic expectation that housing performs between stocks and bonds. In contrast to most previous studies, the authors find residential real estate underperforms based on risk, using standard financial models.

Details

Managerial Finance, vol. 41 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 January 1979

G.H. Lawson and Richard Pike

Though of fairly recent origin, the capital‐asset pricing model (CAPM) is becoming a dominant influence in the analysis of financial and investment decisions. While continuing to…

Abstract

Though of fairly recent origin, the capital‐asset pricing model (CAPM) is becoming a dominant influence in the analysis of financial and investment decisions. While continuing to undergo stringent theoretical and empirical examination, the demonstrable explanatory and predictive ability of the CAPM have led to its widespread recognition as the foundation of modern financial management. Though usually attributed to Sharpe, Lintner and Mossin, the origins of the CAPM can be traced back to the celebrated work of Harry Markowitz on portfolio selection.

Details

Managerial Finance, vol. 5 no. 1
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 January 2006

Anand Shetty and John Manley

Aims to examine the currency impact on return, risk and market correlations from the perspective of both dollar and non‐dollar‐based investments.

3712

Abstract

Purpose

Aims to examine the currency impact on return, risk and market correlations from the perspective of both dollar and non‐dollar‐based investments.

Design/methodology/approach

Monthly data on six stock index series and exchange rates from Financial Times Sources are used, covering the period 1988‐1997.

Findings

Finds that the impact of exchange rate on returns measured in the investor's currency is generally negative for all investor groups, and it raises return volatility above the level of local markets most of the time. The correlation of returns is, however, lower than that of the local returns.

Practical implications

The study reports little evidence of a forward hedge improving the return for investors, but the hedging does reduce volatility for four out of six investors.

Originality/value

Whereas past studies examining market correlations, the riskreturn outcome of international investment, and/or the impact of exchange rate movement on the riskreturn out come, have generally used dollar‐based investment, this paper uses both dollar‐ and non‐dollar‐based investments to determine whether these are any major differences in the way exchange rate affects investment outcomes and market correlations.

Details

Managerial Finance, vol. 32 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 June 2000

Richard T. Dye and John C. Groth

Reviews the previous research on the management of portfolio investment and compares the performance of a typical small investor’s portfolio of nine popular stocks (optimized…

Abstract

Reviews the previous research on the management of portfolio investment and compares the performance of a typical small investor’s portfolio of nine popular stocks (optimized portfolio) with a value‐weighted portfolio (VW), using 1992‐1997 US data. Explains how the portfolios were derived on a rolling basis from the previous 30 months’ data, using four risk levels for the optimized portfolios (OPs). Shows that as risk aversion increases for OPs, minimum returns tend to decrease but average returns increase; but that VW provides superior returns with less volatility. Considers the underlying reasons for the results, concludes that diversification is important even when small numbers of stocks are involved; and suggests some avenues for further research.

Details

Managerial Finance, vol. 26 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 January 1986

WILL FRASER

This paper investigates the risk incurred in UK property investment by the major investing institutions. The historic variability of investment returns from property is compared…

Abstract

This paper investigates the risk incurred in UK property investment by the major investing institutions. The historic variability of investment returns from property is compared with that from long dated British government bonds (gilts) and ordinary shares (equities) using data from the JLW Property Index.1 A variety of definitions of risk are examined in order to assess the relative risk of property, considered both in isolation and as an integral part of the overall institutional portfolio. The investigation concludes that, since the late 1960s, property has involved significantly less risk than either of the two alternative investments.

Details

Journal of Valuation, vol. 4 no. 1
Type: Research Article
ISSN: 0263-7480

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