Benefits of Real Estate

Abstract

Real estate investment represents a significant part of many institutional portfolios. Since real estate is not directly traded on a centralized exchange, the physical real estate market is characterized by relative lack of liquidity, large lot size and high transactions costs with properties that are fixed at a location and heterogeneous. The low transparency of the real estate marketplace also results in potential asymmetric information. This provides a source of relatively high risk adjusted returns to those individuals who can obtain costless 'quality' information. Further, the lack of frequent transaction data for the analysis of return distributions often necessitates the use of appraisal-based series. This article examines the benefits of real estate investments as part of an investor's overall asset portfolio.

The current paper is available for download: