Using investor utility to determine portfolio choice with REITs

Authors

  • Wei Feng College of Business and Management, Lynn University
  • Travis L. Jones Lutgert College of Business, Florida Gulf Coast University
  • Marcus T. Allen Lutgert College of Business, Florida Gulf Coast University

DOI:

https://doi.org/10.61190/fsr.v29i1.3443

Keywords:

Portfolio, Efficient frontier, Target fund, REITs

Abstract

This article examines the decision of individual investors to allocate a portion of their existing investment portfolios to REITs. It first derives the risk preferences of investors represented by their benchmark portfolios of stocks and bonds. Such risk preferences are then used for portfolio decisions regarding REITs. The analysis shows that investors with lower risk aversion tend to have a more substantial stock component in their benchmark portfolio and will obtain higher risk-return benefits from adding REITs. In addition to the theoretical analysis, the article provides a practical solution to evaluate the benefit of investing in REITs.

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Published

2021-03-30

How to Cite

Feng, W., Jones, T. L., & Allen, M. T. (2021). Using investor utility to determine portfolio choice with REITs. Financial Services Review, 29(1), 55–66. https://doi.org/10.61190/fsr.v29i1.3443

Issue

Vol. 29 No. 1 (2021): Spring 2021

Section

New Original Submission

License

Copyright (c) 2021 Academy of Financial Services

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