NCREIF - smoothed vs unsmoothed

is unsmoothed more appropriate? btw, NCREIF is not investable

Unsmoothed is more appropriate b/c it “inserts” volatility into the index to get a more accurate measure of risk, as measured by std dev.

yep uses mv instead of appraised values whats up with the nareit what is meant by hedging the equity component?

selling futures most likely.

They remove the Equity component of the NAREIT b/c it is exchange traded and therefore it decreases it’s return and decreases its correlation.

do we have to know it is removed or just what you said above?

Continuing this rather old discussion - do you think there is indeed a big difference between smoothed and unsmoothed NCREIF? Given the fact that the RE appraisals are done quarterly or in other discrete time intervals, is standard deviation a meaningful measure given the relatively low number of observations? Thanks for contributions!

Smoothed NCREIF shows lower volatility and consequently higher Sharpe. Unsmoothed NCREIF accounts for smoothing and shows higher volatility and consequently lower Sharpe. Unsmoothing also reduces the correlation with equity/bond indexes and makes it a good diversifier. However, both of them are investments in actual-illiquid real estate assets and are exposed to asset specific risks.

If NCREIF is appraisal based, and appraisals are based on recent sales, why does the index produce less volatility than an exchanged-based index?

NCREIF values are usually obtained through annual appraisal, but the index is reported quarterly. the volatility has a downward bias because of the longer the time between appraisals. Std dev decreases as the time interval between observations increases.

We should not smooth NCREIF Index right?