During the past years, the institutional interest in investments into hedge funds and real estate investment trusts has grown considerably. In this paper the benefits of investing in these asset classes are analyzed by applying models that recognize higher-order moments or the whole return distribution like the power-utility, Omega, and Score-value model. Trying to obtain more general results than those we can find from historical data only, we modelled the asset returns by Markov switching processes and did a Monte Carlo study. Within this design we analyzed the optimal allocations to hedge funds and REITs statically and with monthly reallocations based on data from Asian markets. Our main findings are that in the static case the utility model and the Score model are dominant, whereas the mean-variance model appears to be the model of first choice in the dynamic case. In both settings hedge funds are the most dominant asset of the optimal portfolios. REITs are mainly used for diversification and added at comparably lower rates.     «

During the past years, the institutional interest in investments into hedge funds and real estate investment trusts has grown considerably. In this paper the benefits of investing in these asset classes are analyzed by applying models that recognize higher-order moments or the whole return distribution like the power-utility, Omega, and Score-value model. Trying to obtain more general results than those we can find from historical data only, we modelled the asset returns by Markov switching proc...     »