Irish commercial property as a portfolio asset: its contribution to risk reduction

Examines the role of commercial property as a diversification tool in the context of the Irish market. Adjustments are made to the data in order to account for the presence of autocorrelation in the return series, in accordance with the model proposed by Geltner in 1993. The asset allocation tests are run under a number of scenarios, with cash included as an additional low risk asset and constraints imposed on the asset classes examined. Results show that property does improve portfolio performance and lead to a reduction in the risk of the optimal portfolios. Exceptions do however occur when cash is included in the optimal set and when the adjusted property series are used. When constraints are imposed, the minimum allocations required in equities and bonds lead to an increased role in the optimal portfolios for property, with the asset retaining a presence to a higher risk‐return level.