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

  • Shaun A. BondEmail author
  • Soosung Hwang
  • Zhenguo Lin
  • Kerry D. Vandell
Article

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 (2004), and Lin and Vandell (2001, 2005), 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 ten 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 Time on market Transaction process UK 

JEL Classifications

R33 G11 G32 

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Shaun A. Bond
    • 1
    • 2
    Email author
  • Soosung Hwang
    • 3
  • Zhenguo Lin
    • 4
  • Kerry D. Vandell
    • 5
  1. 1.Department of Land EconomyUniversity of CambridgeCambridgeUK
  2. 2.UQ Business SchoolUniversity of QueenslandQLDAustralia
  3. 3.Faculty of FinanceCass School of BusinessLondonUK
  4. 4.Federal National Mortgage AssociationWashingtonUSA
  5. 5.Paul Merage School of BusinessUniversity of California-IrvineIrvineUSA

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