![]() The results are complicated by the period of analysis which started in the aftermath of the major UK real estate recession of the early 1990s, but they give important insights into the impact of depreciation in different segments of the UK real estate investment market. ![]() Using individual property data from the UK Investment Property Databank for the 10-year period between 19, rental and capital depreciation, capital expenditure rates, and total return series for the data sample and for a benchmark are calculated for 10 market segments. This study seeks to rectify this omission, adopting the best practice measurement framework set out by Law (2004). In addition, none of these studies examined impact on total returns they examined either rental value depreciation alone or rental and capital value depreciation. Law (2004) analysed all of these studies and found that the seemingly consistent results were an illusion as they all used a variety of measurement methods and data. There have been a number of previous studies of the impact of depreciation on real estate, particularly in the UK. It is a key input into well-constructed pricing models and its impact on indices of commercial real estate prices needs to be recognised. Understanding its impact is important for asset allocation models and asset management decisions. Using over 140 years of monthly data pertaining to US equities and 10-year yields, I show that combining a momentum factor with a Markov regime switching approach provides a very robust framework with optimal allocations to stocks and bonds in each regime for the traditional manager, and a well defined equities (beta) exposure and interest rate hedge policy for the manager of the pension plan.ĭepreciation is a key element of understanding the returns from and price of commercial real estate. Assuming such a pension plan is exposed to two risk factors only, an equity factor and an interest rate factor, the manager needs to decide on the exposure to equities (the beta to equities measured at the level of the total portfolio), and the level of exposure to interest rates, relative to the benchmark defined by the liabilities. On the other, we investigate the optimal portfolio construction for the manager of a pension plan, where the pension’s liabilities are valued in present value terms. On one hand we derive an optimal allocation framework between stocks and bonds, with and without a momentum factor, taking into account a regime-switching model based on monthly equity and interest rate data since 1870. The DRM optimization model reduces investors’ risk more than the conventional models and can be accommodated with risk-averse investors’ approach. Our findings also show that skewness does not impose any significant problem in the DRM model. We find that it can negatively affect portfolio returns. Our findings increase the importance of risk (tolerance) perception, in particular drawdown risk, when making many investment decisions. ![]() We find that the potential benefits of funds’ diversification may weaken decreases in tolerance levels of drawdown risk. The optimization models in the DRM form are run to optimize the risk measures and investigate the effects of drawdown risk reduction. ![]() The monthly returns are applied for 1720 US hedge funds over the period 2000–2011. Unlike prior literatures, we use the drawdown risk measure (DRM), which is a special case of LPM, to study the impacts of drawdown risk decrease on management styles of the US hedge funds. Despite the existence of numerous evidences on the asymmetric distribution of portfolio returns, the asymmetric risk measures have been extensively applied in risk management during recent years with the considerable applications on the lower partial moment (LPM) methodology. We investigate the effects of drawdown risk reduction on the US hedge funds.
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