1 / 15

Optimal Portfolio A llocation using TLI

Optimal Portfolio A llocation using TLI . Tommaso Gabrieli University of Reading Davide Manstretta IPD. Introduction. Motivation Property market returns (IPD) are based on Valuers ’ appraisal Vast literature argues that data underestimates true volatility (smoothing)

poppy
Download Presentation

Optimal Portfolio A llocation using TLI

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Optimal Portfolio Allocation using TLI TommasoGabrieliUniversity of Reading DavideManstrettaIPD

  2. Introduction • Motivation • Property market returns (IPD) are based on Valuers’ appraisal • Vast literature argues that data underestimates true volatility (smoothing) • New IPD series Transaction-Linked Index (TLI) should represent true returns and correct for the problem • Devaney and Martinez Diaz JPR 2011 • Research Questions: • Is TLI series different form de-smoothed Valuers’ Based Index (VBI) series? • Implications for portfolio allocation?

  3. Agenda • Introduction and Results Overview • A little bit of theory: • Problem definition • Empirical Results: • Differences between TLI and de-smoothed VBI • Portfolio Allocation analysis • Conclusions • Main Result • TLI and de-smoothed VBI are very different; strong implications for portfolio allocation

  4. TLI vs. VBI capital growth, QTLY 2002-2010

  5. Smoothing • Assumptions: • Property Market Returns are Valuation Based • May Lag Market Movements – Distorts Correlation • May Be “Smoothed” – Understates the Volatility • “De-smoothing” Procedures • Remove the Impact of Valuations in Data • Reported return is a blend of “true” and previous return • De-smoothing: • Rvt= a Rvt-1 + (1-a)Rt Therefore Rt = {Rvt - a Rvt-1 } / (1-a) where a is the “smoothing parameter” • Vast literature: • Blundell and Ward (1987), Quan and Quigley (1991), Brown and Matysiak (2000), Geltner et al. (2002) and many others…

  6. TLI vs. De-smoothed

  7. TLI vs. De-smoothed

  8. TLI vs. De-smoothed (Q3 2002 – Q1 2007)

  9. TLI vs. De-smoothed (Q2 2007 – Q4 2010)

  10. Optimal Portfolio with TLI

  11. Optimal Portfolio, TLI vs. VBI

  12. Optimal Portfolio, TLI vs. VBI (Q3 2002 – Q1 2007)

  13. Efficient Frontier

  14. Conclusion • Findings • According to TLI, property is a very attractive asset class • TLI and De-smoothed VBI are very different, which is theoretically worrying... • Extensions • Annual Data • Implied smoothing parameter

  15. Thank you for your attention Questions? Comments?

More Related