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How much into infrastructure? Evidence from dynamic asset allocation

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  • Tobias Dechant
  • Konrad Finkenzeller

Abstract

This paper investigates the role of direct infrastructure in a multi-asset portfolio by employing a US transaction-based index which covers the period Q2 1990--Q2 2010. We determine time-varying asset allocations using a mean-variance as well as a mean-downside risk optimisation algorithm and show that infrastructure plays an important role in both models. It is allocated predominantly to portfolios that exhibit low-to-medium risk with maximum allocations of 32 and 28%, respectively. With increasing investment horizons, infrastructure is also attractive to investors who aim at earning higher returns, and especially to those who wish to protect low-expected-return portfolios from downside risk. As infrastructure and large cap stocks are highly correlated over longer investment horizons, the allocation to infrastructure is sensitive to whether large cap stocks are allocated to the portfolio. Furthermore, we find that infrastructure is not a substitute for real estate.

Suggested Citation

  • Tobias Dechant & Konrad Finkenzeller, 2013. "How much into infrastructure? Evidence from dynamic asset allocation," Journal of Property Research, Taylor & Francis Journals, vol. 30(2), pages 103-127, June.
    • Handle: RePEc:taf:jpropr:v:30:y:2013:i:2:p:103-127
    DOI: 10.1080/09599916.2012.731075
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    References listed on IDEAS

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    1. Liang Peng, 2001. "Building A Venture Capital Index," Yale School of Management Working Papers ysm221, Yale School of Management, revised 01 Oct 2001.
    2. Georg Inderst, 2009. "Pension Fund Investment in Infrastructure," OECD Working Papers on Insurance and Private Pensions 32, OECD Publishing.
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    Cited by:

    1. Surbhi Gupta & Anil Kumar Sharma, 2022. "Evolution of infrastructure as an asset class: a systematic literature review and thematic analysis," Journal of Asset Management, Palgrave Macmillan, vol. 23(3), pages 173-200, May.
    2. Zaghum Umar & Adam Zaremba & Ammar Ali Gull & Tatiana Sokolova, 2024. "Beyond traditional financial asset classes: The demand for infrastructure in a multi‐period asset allocation framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2581-2592, July.
    3. Wouter Thierie & Lieven Moor, 2016. "The characteristics of infrastructure as an investment class," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 277-297, August.
    4. Tanzeem Hasnat, 2021. "Infrastructure Equity and Firm Performance in India," Millennial Asia, , vol. 12(1), pages 97-115, April.
    5. Daniel Wurstbauer & Wolfgang Schäfers, 2015. "Inflation hedging and protection characteristics of infrastructure and real estate assets," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 33(1), pages 19-44, February.
    6. Louis Chakkalakal & Ulrich Hommel & Wenwei Li, 2018. "Transport infrastructure equities in mixed-asset portfolios: estimating risk with a Garch-Copula CVaR model," Journal of Property Research, Taylor & Francis Journals, vol. 35(2), pages 117-138, April.
    7. Muhammad Jufri Marzuki & Graeme Newell, 2020. "The investment opportunities in the innovation-led listed satellite and telecommunication infrastructure sectors," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 39(3), pages 223-238, April.
    8. Muhammad Jufri Marzuki & Graeme Newell, 2020. "A global investment opportunity in non-listed infrastructure for institutional investors," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 39(3), pages 239-255, May.
    9. Michael Heinrich & Thomas Schreck, 2017. "Effects of Solvency II on Portfolio Efficiency, The Case of Real Estate and Infrastructure Investments," LARES lares_2017_paper_8, Latin American Real Estate Society (LARES).
    10. Frédéric Blanc-Brude & Timothy Whittaker & Simon Wilde, 2017. "Searching for a listed infrastructure asset class using mean–variance spanning," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 137-179, May.
    11. Graeme Newell, 2021. "Future research opportunities for Asian real estate," International Journal of Urban Sciences, Taylor & Francis Journals, vol. 25(2), pages 272-290, April.

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