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Analyst Forecasting Errors in REITs

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  • Haiwei Chen

    ()
    (The University of Texas, Pan American, Department of Economics and Finance, 1201 West University Drive, Edinburg, Texas 78539-2999, Phone: (956) 665-3338, Fax: (956) 665-5020)

  • Ansley Chua

    ()
    (Kansas State University, Department of Finance, Kansas State University, Calvin Hall, Manhattan, KS 66506, Phone: (785) 532-6031, Fax: (785) 532-6822)

  • Changha Jin

    ()
    (Hanyang University, Department of Economics, Ansan Kyunggi-do, South Korea, 426-791, Phone(031) 400-5593, Fax (031) 400-5591)

Abstract

We find that the 3-day window around funds from operations (FFO) announcements drives the momentum profits found in the literature, which deliver an average excess monthly return of 1.22% over the period of 1990-2008 and 1.59% during the post-2000 period. Excluding this announcement window, a momentum strategy does not generate any significant returns. The FFO-surprised-based portfolio formation method produces higher momentum profits than the return-based formation method. There is a significant positive serial correlation between the unexpected FFO for the next two quarters. We contribute to the current literature by documenting that the persistence of momentum profits is due to the underreaction by analysts on public information, the FFO announcement.

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Bibliographic Info

Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 16 (2013)
Issue (Month): 1 ()
Pages: 48-67

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Handle: RePEc:ire:issued:v:16:n:01:2013:p:48-67

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Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web page: http://www.asres.org/

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Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Related research

Keywords: REITs; Analyst Forecasting; Momentum Strategy; Real Estate Investment;

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Szu-Yin Hung & John Glascock, 2008. "Momentum Profitability and Market Trend: Evidence from REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 37(1), pages 51-69, July.
  2. Harrison Hong & Terence Lim & Jeremy C. Stein, 1998. "Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies," NBER Working Papers 6553, National Bureau of Economic Research, Inc.
  3. Charles M.C. Lee & Bhaskaran Swaminathan, 2000. "Price Momentum and Trading Volume," Journal of Finance, American Finance Association, vol. 55(5), pages 2017-2069, October.
  4. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
  5. Ganapathi Narayanamoorthy, 2006. "Conservatism and Cross-Sectional Variation in the Post-Earnings Announcement Drift," Journal of Accounting Research, Wiley Blackwell, vol. 44(4), pages 763-789, 09.
  6. Timothy C. Johnson, 2004. "Forecast Dispersion and the Cross Section of Expected Returns," Journal of Finance, American Finance Association, vol. 59(5), pages 1957-1978, October.
  7. Chui, Andy C. W. & Titman, Sheridan & Wei, K. C. John, 2003. "Intra-industry momentum: the case of REITs," Journal of Financial Markets, Elsevier, vol. 6(3), pages 363-387, May.
  8. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
  9. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
  10. Andy C. W. Chui & Sheridan Titman & K. C. John Wei, 2003. "The Cross Section of Expected REIT Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(3), pages 451-479, 09.
  11. Narasimhan Jegadeesh, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, 04.
  12. Tobias J. Moskowitz & Mark Grinblatt, 1999. "Do Industries Explain Momentum?," Journal of Finance, American Finance Association, vol. 54(4), pages 1249-1290, 08.
  13. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. " Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
  14. Erik Devos & Seow Ong & Andrew Spieler, 2007. "Analyst Activity and Firm Value: Evidence from the REIT Sector," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 333-356, October.
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