Modern Portfolio Theory Is An Essential Part Of Higher Return

1848 Words Mar 15th, 2016 8 Pages
Modern Portfolio Theory
Modern portfolio theory is an investment theory based on that investors can construct portfolio to maximize return which based on a given level of market risk, emphasizing that risk is an essential part of higher return. Modern portfolio theory is one of the most significant economic theory dealing with finance and investment, which was published by Harry Markowitz in his paper “Portfolio Selection” in 1952 by Journal of Finance (Shipway, 2009).
According to Shipway (2009), the problem of direct real estate investment is the lack of liquidity which compared with other investment media. The reason is real estate special features, such as the large size, high transaction costs, infrequency transaction of real estate and delay due to legal work (ibid). The problem of relative illiquidity impacts the attractiveness of property as an asset class. The portfolio managers’ ability was restricted by illiquidity to switch between real estate and other asset classes. Moreover, the restructuring program of the real estate portfolio in response to changing perceptions of sectorial and the potential of geographical performance should be limited. The investor’s ability would indirectly reduced by Illiquidity, which to apply formal portfolio theory to real estate portfolio decisions. On the other hand, most of institutional investors do not like to invest more in real estate because of the misjudgment of real estate investment (Hishamuddin, 2016). Portfolio…
Open Document