Enhanced portfolio optimisation model for real estate investment in HK

Chi Man Hui, Carisa K.W. Yu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)


This paper investigates the role of direct real estate investment and securitised properties in a multi-asset portfolio with financial assets available in Hong Kong, in a variety of time horizons. Grounded on the mean-variance framework within the Modern Portfolio Theory, the study extends it by deploying the Exponentially Weighted Moving Average (EWMA) technique to estimate the variance and covariance, which reduces estimation errors, owed to the lack of 'dynamic update' capabilities in the standard model. Additionally, a constraint on the allocation to direct real estate investment is imposed in the portfolio optimisation problem to examine how percentage changes in the allocation to real properties affect the return and risk of the optimal portfolio. The experimental results show that the private domestic plays a more important role than property stocks in an optimal multi-asset portfolio, in all time horizons, with allocation ranging from 23-27%. Also, for an optimal portfolio with shorter time horizons, lesser-value direct real estate (Class A/B) tends to be included, while luxury property investment is the main asset for portfolios with longer time horizons. This proffers some implications for fund managers in Hong Kong in the management of portfolio investment when real estate is involved, subject to various levels of returns, risks and longevity.
Original languageEnglish
Pages (from-to)147-180
Number of pages34
JournalJournal of Property Research
Issue number2
Publication statusPublished - 1 Jun 2010


  • Exponentially weighted moving average (EWMA) technique
  • Portfolio management
  • Private domestics
  • Real estate investment

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Urban Studies


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