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Modern Portfolio Theory as Applied to REITs

Last Updated on 10 February, 2024 by Rejaul Karim

The study “Modern Portfolio Theory as Applied to REITs” penned by Jeffrey Kerrigan provides an insightful analysis of Real Estate Investment Trusts (REITs) within the framework of modern portfolio theory. Established in the 1960s, REITs were designed to grant the public access to investments in large-scale real estate ventures, offering potential capital gains and robust dividend income.

Notably, the diversification advantages that REITs confer upon investment portfolios have been widely documented. Kerrigan’s paper delves into the potential for value addition and portfolio construction inherent within REITs, unraveling a multifaceted exploration.

The framework outlined in the study assesses the potential for fine-tuning investment strategies within REITs, shedding light on the challenges that may obstruct such strategies. Through this lens, the study offers a comprehensive and critical evaluation of the investment prospects and strategic considerations encompassing the realm of REITs.

Abstract Of Paper

In the 1960s the legislative framework for REITs was established to allow the investing public to benefit from investments in large-scale real estate enterprises. REITs typically offer superior dividend income along with the potential for capital gains to investors. There is also a great deal of work that describes the diversification benefits provided by REITs to an investor’s portfolio. Our paper highlights the prospects for value added and portfolio construction within REITs themselves. In this endeavor we discuss a framework to review any investment strategy, review an investment strategy for selecting among REITs, and finally illustrate the principal impediment to such a strategy.

Original paper – Download PDF

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Author

Jeffrey Kerrigan
Ten Asset Management

Conclusion

In delving into the intricacies of “Modern Portfolio Theory as Applied to REITs,” authored by Jeffrey Kerrigan, we navigate through a compelling exploration of Real Estate Investment Trusts (REITs) within the context of portfolio theory.

Originating in the 1960s, the legislative conception of REITs aimed to democratize engagement in large-scale real estate enterprises, offering investors the allure of substantial dividend income and potential capital gains.

Furthermore, the extensive literature documenting the diversification advantages offered by REITs to investment portfolios underscores their pivotal role in shaping robust investment strategies. Kerrigan’s study meticulously accentuates the potential for value augmentation and portfolio construction inherent within REITs, presenting a comprehensive framework for evaluating investment strategies tailored to this unique asset class.

It adeptly outlines both the affirmative prospects and the principal challenges associated with crafting investment strategies for REITs, shedding critical light on the intricacies within the realm of REIT investments and strategy.

Related Reading:

How Smart Is the Real Estate Smart Beta? Evidence from Optimal Style Factor Strategies for REITs

Overreaction and the Cross-Section of Returns: International Evidence

FAQ

What is the focus of the study “Modern Portfolio Theory as Applied to REITs” by Jeffrey Kerrigan?

The study focuses on Real Estate Investment Trusts (REITs) within the framework of Modern Portfolio Theory. It explores the potential for value addition and portfolio construction within REITs, offering insights into the challenges and prospects associated with crafting investment strategies for this unique asset class.

What was the legislative framework for REITs established in the 1960s designed to achieve?

In the 1960s, the legislative framework for REITs was established to allow the investing public to benefit from investments in large-scale real estate enterprises. REITs were designed to provide investors with access to potential capital gains and robust dividend income.

What does the study highlight regarding REITs and portfolio construction?

The study highlights the prospects for value addition and portfolio construction within REITs. It provides a framework to review investment strategies within REITs and discusses an investment strategy for selecting among REITs. The study aims to offer a comprehensive evaluation of the investment prospects and strategic considerations associated with REITs.

You can find many more Research Papers here

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