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Abstract
Executive Summary. Modern portfolio theory, (MPT) has increasingly been applied in the area of real estate analysis in order to examine and justify the place of real estate in the mixed-asset portfolio. However the application of MPT presents a number of theoretical problems when the data exhibits non-normality.
This study outlines these difficulties, and presents a portfolio selection model based on the Mean Absolute Deviation (MAD). This method can address the problems and produces results that are essentially identical to those produced by MPT. This study demonstrates the MAD method, and applies it to the NCREIF regional data over the period from 1Q1983 to 4Q1994.