Value weighting and real estate portfolio risk

This paper extends the discussion concerning the value weighting and variability of portfolio returns. In particular, it critically analyses the work of Morrell (1993) in light of previous research and the theory of portfolio strategy. It shows that his conclusions are only valid under restrictive conditions concerning asset variance and the pairwise correlation structure of returns that are typical of naive investment strategies. A revised formulation of Morrell's coefficient of value skewness (CVS) is derived which is more general in application, while caveats are place on its interpretation. The strategic implications of value weighting are then discussed in the light of this analysis, raising questions for further research.