Using a sample of EREIT returns during the period 1993 to 2006 from the CRSP/Ziman REITs database, I construct portfolios of equity REITs based on past raw returns and evaluate their raw returns and risk-adjusted returns during the holding period for persistence. After adjusting for risk with Carhart (1997)’s 4-factor model, I find no evidence of persistence. By implication, a momentum strategy of buying historical winners and short-selling losers does not generate statistically significant abnormal returns. However, I do find strong evidence of performance reversal based on two-year and three-year ranking and holding periods. Consistent with DeBondt and Thaler (1985)’s overreaction theory, investors tend to overreact based on long-term rather than short-term performance records. This would suggest that investors tend to take a much longer period of time to formulate an opinion regarding a REIT’s performance record than previously assumed by earlier researchers. While there is a measurable tendency toward performance reversal, the return spread between the best performing EREITs and worst performing EREITs is marginal. This would indicate that the REIT markets are behaving in a generally efficient fashion. The investigation of the association of EREIT characteristics and performance persistence suggests a property type focus and geographic diversification strategy for EREITs. At the same time, EREITs with high leverage also tend to exhibit good performance persistently.
| Identifer | oai:union.ndltd.org:GEORGIA/oai:digitalarchive.gsu.edu:real_estate_diss-1003 |
| Date | 09 January 2009 |
| Creators | Zhou, Xiaorong |
| Publisher | Digital Archive @ GSU |
| Source Sets | Georgia State University |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | Real Estate Dissertations |
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