The Effect of Lock-Ups on the Suggested Real Estate Portfolio Weight

Martin Hoesli, Eva Liljeblom, Anders Loflund

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


We test relative illiquidity, exemplified through a temporary lock-up, as a partial explanation for the gap between theoretical and empirical weights for real estate in a multi-asset portfolio. Since asset correlations are known to increase in bear markets, which reduce their diversification benefits, the ex-ante knowledge of a lock-up in an asset class that offers diversification benefits in bull markets (Hung et al., 2008) may reduce the optimal weight that an investor wishes to put in it ex-ante. By using dynamic multiperiod portfolio policies by Brandt and Santa-Clara (2006), and introducing a lock-up in line as per de Roon et al. (2009), we study the effects of a partial lock-up on the weight for REITs in a U.S. stock and bond portfolio. We find support for our prediction, in the form of lower weights for the illiquid asset once a lock-up is introduced.
Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalInternational Real Estate Review
Issue number1
Publication statusPublished - Mar 2014

Bibliographical note

We thank the Academy of Finland for financial support.


  • Asset Allocation
  • Illiquidity
  • Lock-Up
  • Multi-period Portfolio Optimization
  • REITs


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