Antifragility of Real Estate Investments in a World of Fat-Tailed Risk*

Photo is of Guy Tcheau and Norman Miller, PhD

A revised version of the paper, titled "Antifragility of Real Estate Investments in a World of Fat-Tailed Risk" was released March 21, 2021 by co-authors Guy Tcheau, managing director of Principal Real Estate Investors and Norman Miller, PhD, Ernest Hahn Chair and Professor of Real Estate Finance at the University of San Diego School of Business and affiliated with the Burnham-Moores Center for Real Estate.

In this paper, Tcheau and Miller indicate that "Black Swan" events occur more frequently in the real world than predicted by traditional financial models. When they occur, there are few places for investors to hide. Past covariance assumptions required for efficient frontiers within modern portfolio theory fall apart. Real estate’s track record through past recessions and shocks is asymmetrically skewed right with respect to the return distribution, and thus has antifragile qualities for longer term investors. Multi-asset portfolios will benefit from higher allocations to real estate. The risk adjusted returns are higher than for any other asset class.

Read updated paper below.


Kimberly Malasky
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