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Ex-ante performance of REIT portfolios

Author

Listed:
  • Gene Birz

    (Southern Connecticut State University)

  • Erik Devos

    (University of Texas at El Paso)

  • Sandip Dutta

    (Southern Connecticut State University)

  • Khoa Nguyen

    (Southern Connecticut State University)

  • Desmond Tsang

    (Chinese University of Hong Kong Business School)

Abstract

The Real Estate Investment Trust (REIT) market has become an increasingly important vehicle for alternative investment for equity investors. While existing research examining the cross-section of REIT returns usually employs standard risk factors in the in-sample models, it can only show the ex-post performance of REIT portfolios. The goal of our paper is to examine the ex-ante performance of REIT portfolios (i.e., the ability of investors to earn abnormal returns in real time). We employ the out-of-sample methodology of Cooper, Gutierrez, and Marcum (2005), and show that ex-ante performance of REIT portfolios is rather weak. For about half of our 19-year sample over the period of 1999 to 2017, the portfolio performances of REITs chosen ex-ante do not beat the performances of the FTSE-NAREIT or the CRSP Equal-Weighted index. After adjusting for transaction costs, the REIT portfolios significantly further underperform their benchmarks. Overall, our findings suggest that the market is relatively efficient in the REIT sector, and it is difficult for investors to devise trading strategies that improve the ex-ante performance of REIT portfolios, based on standard risk factors.

Suggested Citation

  • Gene Birz & Erik Devos & Sandip Dutta & Khoa Nguyen & Desmond Tsang, 2022. "Ex-ante performance of REIT portfolios," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 995-1018, October.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:3:d:10.1007_s11156-022-01068-6
    DOI: 10.1007/s11156-022-01068-6
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    References listed on IDEAS

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    2. Reis, Julius & Grebe, Leonard & Schiereck, D. & Hennig, Kerstin, 2023. "Is There Still a Day-of-the-Week Effect in the Real Estate Sector?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 141998, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).

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