Marketing Period Risk in a Portfolio Context: Theory and Empirical Estimates from the UK Commercial Real Estate Market

26 Pages Posted: 20 Jan 2006

See all articles by Shaun A. Bond

Shaun A. Bond

UQ Business School

Soosung Hwang

Sungkyunkwan University - Department of Economics

Zhenguo (Len) Lin

Florida International University (FIU) - Hollo School of Real Estate

Kerry D. Vandell

University of California, Irvine - Paul Merage School of Business; University of California, Irvine School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005

Abstract

The role of selling (or marketing) period uncertainty in understanding risk associated with property investment is examined in this paper. Using an approach developed by Lin and Vandell [2001, 2005] and Lin [2004], combined with a statistical model of UK commercial property transactions, we show that the ex ante level of risk exposure for a commercial real estate investor is around one and a half times that obtained from historical statistics. The risk related to marketing time uncertainty can be reduced by constructing a portfolio. We find that at least 10 properties are necessary to reduce this risk, assuming independence between marketing period risk and price risk. These findings have important implications for mixed-asset portfolio allocation decisions.

Keywords: liquidity risk, commercial real estate

JEL Classification: G11, R33

Suggested Citation

Bond, Shaun Alexander and Hwang, Soosung and Lin, Zhenguo and Vandell, Kerry D., Marketing Period Risk in a Portfolio Context: Theory and Empirical Estimates from the UK Commercial Real Estate Market (May 2005). Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=876422 or http://dx.doi.org/10.2139/ssrn.876422

Shaun Alexander Bond (Contact Author)

UQ Business School ( email )

The University of Queensland
Brisbane, QLD 4072
Australia

Soosung Hwang

Sungkyunkwan University - Department of Economics ( email )

25-2 Sungkyunkwan-ro
Jongno-Gu
110-745 Seoul
+82 (0)2 760 0489 (Phone)
+82 (0)2 744 5717 (Fax)

Zhenguo Lin

Florida International University (FIU) - Hollo School of Real Estate ( email )

Miami, FL 33199
United States
3057799248 (Phone)

Kerry D. Vandell

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

University of California, Irvine School of Law ( email )

401 E. Peltason Dr.
Ste. 1000
Irvine, CA 92697-1000
United States

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