This study is an extension of the research done by Waggle & Agrrawal (2006), which assesses the marginal effects of changes in optimal portfolio weights with respect to changes in the REIT-stock risk premium and correlation coefficients under a three-asset setting. We also consider two time periods from 1988-2011 and from 2000-2011. The results show that the sensitivity of changes in the REIT-stock risk premium on optimal portfolio weights is significantly higher than the effect of changes in correlation coefficients. Although the findings of the study do not provide the optimal portfolio composition for asset allocation, it provides compelling evidence of the importance in forecasting expected parameters and choosing appropriate historical time periods for a mean-variance optimization.
MSc of Finance Project-Simon Fraser University