Portfolio Theory Concepts

Portfolios that fall outside the efficient frontier are unreachable because they offer either lower returns for the same risk or higher risk for the same return, compared to portfolios on the frontier.

Market prices, in an efficient market, reflect the systematic risk of an asset. Systematic risk is the inherent risk of the overall market, affecting all assets, and can't be diversified away. However, they do not reflect unsystematic risk, which is specific to a particular asset and can be minimized through diversification.

The positive minimum risk portfolio of any security implies the market price of that security will be higher than the original price, due to the inclusion of this security in the portfolio which reduces overall risk.

Large pension funds, according to research, generally hold less real estate than what experts consider optimal. This suggests they could decrease their risk exposure without sacrificing potential return by increasing their real estate holdings.

Efficient portfolios, as defined by modern portfolio theory, represent the best possible combination of risk and return. They achieve the lowest possible risk for a given level of expected return, or the highest return for a given level of risk.

The negative minimum risk portfolio of any security implies that the market price of that security will be lower than the original price. This happens when adding that specific security to the portfolio increases overall risk.

A portfolio that achieves the highest expected return for a given level of risk, or the lowest risk for a given level of expected return.

The risk that cannot be diversified away. It is inherent in the market and affects all assets.

Modern Portfolio Theory (MPT) is a framework for constructing portfolios that balances risk and return. It suggests that investors can reduce risk by diversifying their portfolios across different asset classes.

Diversification in real estate portfolios is about reducing risk by not putting all your eggs in one basket. Adding an asset with lower risk than the average in the portfolio can help, even if it's not the most risky.

Adding a risk-free asset, like a government bond, to a portfolio can actually shift the efficient frontier. This means that by including a risk-free asset, investors can potentially achieve higher returns for the same level of risk or lower risk for the same level of return.

Leveraged assets refer to assets that involve borrowing money to enhance returns. Including leveraged assets in a portfolio can influence the efficient frontier by potentially increasing both risk and reward. However, this depends heavily on the specific leverage strategy employed and the associated risks involved.

The efficient frontier in portfolio management is a curve that represents the set of portfolios that offer the highest expected return for each level of risk. It helps investors identify the best portfolio choices based on their risk tolerance.

The Efficient Frontier can change when new assets are added to the portfolio, including risk-free and leveraged assets. This is because the addition of new assets can alter the overall risk-return profile of the portfolio, potentially shifting the efficient frontier.

The precise combination of assets that comprises an efficient portfolio is complex and difficult to pinpoint exactly. Numerous factors, like market conditions, asset correlations, and investor preferences, influence its composition.

While Modern Portfolio Theory provides a comprehensive framework for portfolio construction, it's important to remember that there will always be some level of uncertainty when constructing an efficient portfolio. The exact composition of an efficient portfolio isn't always easy to determine with certainty, and it's constantly evolving depending on various market factors.