The Perfect Portfolio

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Nowadays investors have a large number of choices of how they can invest their money. One
of their biggest challenges is how to allocate their portfolio between equities, bonds and
properties. It can only be shown afterwards, which was the best allocation. That is why it is so
popular to look at historical mean-variance to predict the future. In this master thesis historical
data is also used to see which patterns in the asset returns that repeat themselves. As an
investor you can earn or save a lot of money by following some rules learned from historical
data. Through multiple regressions these predictors are found and are called views in this
master thesis. The historical mean-variance together with the views are inputs into the Black
Litterman model which is used to optimise the asset portfolio.
In this work the diversity between different investments and how the returns have been during
the last years is discussed. The investors’ investment universe is important for the portfolio
return. In this master thesis it is examined if the pretty low yielding Direct Property
Investment can increase a portfolio return in comparison with a portfolio without this asset.

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