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In the commercial real estate market, which is perceived to be relatively inefficient, investors have comparative advantages; hence there are significant costs to diversification. This paper presents for the first time a series of market (or quasi‐market) returns for a large data base. This data base is believed to be the most complete commercial real estate data base yet constructed. The paper empirically evaluates the benefits of diversification along various dimensions within the commercial real estate opportunity set. The analysis confirms certain aspects of prior work concerning inflation protection and diversification opportunities while concluding that even investment grade real estate investments are heterogeneous assets.
Miles et al. (Sat,) studied this question.