Discuss some political and legal considerations

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Question: Available empirical evidence suggests that commercial real estate is an asset class that should be well represented in the mixed asset portfolios of institutional investors. However, despite the perceived importance of real estate in mixed asset portfolios, pension funds typically allocate smaller shares to real estate than analysis based on Modern Portfolio Theory (MPT) predicts they should.

a. Discuss some political and legal considerations, along with the nature of informational efficiency in the real estate asset market, that could explain pension fund reluctance to invest more in commercial real estate.

b. (CD material) Discuss two academic theories that have been proposed to explain the discrepancy between the available empirical evidence and pension fund investment behavior, i.e., the so-called pension fund real estate investment puzzle.

Reference no: EM131735568

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