Title: A macro-economic indicator-based risk management strategy for the small property investor

Authors: Alfred Atsango Talukhaba; Jan H. Steenkamp; Collins Ogutu Miruka

Addresses: Faculty of Engineering and the Built Environment, School of Construction Economics and Management, University of the Witwatersrand, 1 Jan Smuts Avenue, P.O. Box Wits 2050, Johannesburg, South Africa ' Faculty of Engineering and the Built Environment, School of Construction Economics and Management, University of the Witwatersrand, 1 Jan Smuts Avenue, P.O. Box Wits 2050, Johannesburg, South Africa ' Graduate School of Business and Government Leadership, North West University, Mafikeng Campus, P.O. Box 3340, Mmabatho 2735, South Africa

Abstract: It is generally believed that the principles of modern portfolio theory (MPT) may be applicable to small direct property investments, to formulate an investment risk management strategy, which is embedded in the conceptual stages of the investment and thus reduce the reliance on often, ineffective, active management and remedial strategies during the holding period. The main obstacle, however, is that the application of MPT requires an industry benchmark or index, which is representative of the market and against which performance may be measured. This paper investigates the possibility of deriving an investment-specific benchmark or a hypothetical return curve based on the relationships that exist between the macro-economy and the property market. This would make it possible for small property investors to apply the risk management principles inherent to portfolio investing and incorporate these principles in the feasibility cash flows of small direct property investments.

Keywords: MPT; modern portfolio theory; small investors; property investors; risk management; macro-economic indicators; South Africa; property investments; ineffective management; active management; remedial strategies; holding periods; industry indexes; performance measurement; investment-specific benchmarks; hypothetical return curves; relationships; macro-economics; property markets; feasibility cash flows; business research.

DOI: 10.1504/IJEBR.2012.047418

International Journal of Economics and Business Research, 2012 Vol.4 No.4, pp.374 - 392

Published online: 25 Nov 2014 *

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