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Real Estate Securities and a Filter-based, Short-term Trading Strategy

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    Abstract

    Anecdotal evidence provides overwhelming support to the belief that sophisticated real estate investors profit by timing long-run real estate cycles. This article examines the investment performance benefits that sophisticated investors may derive from short-run cycles in real estate, specifically, through the publicly traded real estate markets. Using a simple strategy that filters out noise in real estate investment trust (REIT) price reversals, this study shows that a contrarian strategy is many times more profitable than the associated execution costs. Furthermore, the study demonstrates that the REIT market has been sufficiently liquid to execute this trading strategy. This last point is directly related to the filter strategy since only REITs with large price movements satisfy the hypothetical investor’s selection criteria.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol18n02/v18p313.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 18 (1999)
    Issue (Month): 2 ()
    Pages: 313-334

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    Handle: RePEc:jre:issued:v:18:n:2:1999:p:313-334

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

    Order Information:
    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    1. Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-., 1989. "When are contrarian profits due to stock market overreaction?," Working papers 3008-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Edward Nelling & Joseph Gyourko, 1998. "The Predictability of Equity REIT Returns," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 251-268.
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    8. Liu, Crocker H & Mei, Jianping, 1992. "The Predictability of Returns on Equity REITs and Their Co-movement with Other Assets," The Journal of Real Estate Finance and Economics, Springer, vol. 5(4), pages 401-18, December.
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    13. Conrad, Jennifer & Gultekin, Mustafa N & Kaul, Gautam, 1997. "Profitability of Short-Term Contrarian Strategies: Implications for Market Efficiency," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 379-86, July.
    14. Lakonishok, Josef & Vermaelen, Theo, 1990. " Anomalous Price Behavior around Repurchase Tender Offers," Journal of Finance, American Finance Association, vol. 45(2), pages 455-77, June.
    15. Rakesh Bharati & Manoj Gupta, 1992. "Asset Allocation and Predictability of Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 7(4), pages 469-484.
    16. Christopher A. Sims, 1980. "Martingale-Like Behavior of Prices," NBER Working Papers 0489, National Bureau of Economic Research, Inc.
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    18. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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