Modern Portfolio Theory : is there any opportunity for Real Estate Portfolio?

Abstract

Modern Portfolio Theory (MPT) has become the backbone of finance as it gives better understanding of the best possible investment portfolio for financial assets. Since the idea was introduced by Harry Markowitz about five decades ago,the applicability of MPT to real estate analysis have been widely discussed by many real estate researchers with some pro and con outcomes. As MPT was developed through some unrealistik assumptions, the results from previous studies could not give a decisive generalisation of real estate investment decisions. This paper presents the issues of the applicability and implication of employing MPT on real estate portfolio analysis. The discussion is merely looking into some previous empirical studies with mixture of findings.The new paradigm of real estate investment has been shifted from tactical and operational to strategic and tactical style of management. Therefore, MPT could give a sound analytical view of real estate portfolio analysis which may offer more opportunities for further research particularly in Malaysia.