Based on the assumption that returns in Commercial Real Estate are normally distributed, the Sharpe Ratio has been the standard risk-adjusted performance measure for the past several years. Research has questioned whether this assumption can be reasonably made. The Upside Potential Ratio as a risk-adjusted performance measure is an alternative to measure performance on a risk-adjusted basis but its values differ from the Sharpe Ratio's only in the assumption of skewed returns. We will provide reasonable evidence that CRE returns should not be fitted with a normal distribution and present the Gaussian Mixture Model as our choice of distribution to fit skewness. We will then use a GMM distribution to measure performance of CRE domestic markets via UPR. Additional insights will be presented by introducing an alternative risk-adjusted perfomance measure that we will call D-ratio. We will show how the UPR and the D-ratio can provide a tool-box that can be added to any existing investment strategy when identifying markets' past performance and timing of entrance. The intent of this thesis is not to provide a comprehensive framework for CRE investment decisions but to introduce statistical and mathematical tools that can serve any portfolio manager in augmenting any investment strategy already in place.
| Identifer | oai:union.ndltd.org:BGMYU2/oai:scholarsarchive.byu.edu:etd-7705 |
| Date | 01 April 2017 |
| Creators | DApuzzo, Daniele |
| Publisher | BYU ScholarsArchive |
| Source Sets | Brigham Young University |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | All Theses and Dissertations |
| Rights | http://lib.byu.edu/about/copyright/ |
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