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Forecasting EREIT Returns

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Author Info

  • Camilo Serrano

    (University of Geneva)

  • Martin Hoesli

    (University of Geneva, University of Aberdeen, Bordeaux Business School and Swiss Finance Institute)

Abstract

This paper analyzes the role played by financial assets, direct real estate, and the Fama and French factors in explaining EREIT returns and examines the usefulness of these variables in forecasting returns. Four models are analyzed and their predictive potential is assessed by comparing three forecasting methods: time varying coefficient (TVC) regressions, vector autoregressive (VAR) systems, and neural networks models. Trading strategies on these forecasts are compared to a passive buy-and-hold strategy. The results show that EREIT returns are better explained by models including the Fama and French factors. The VAR forecasts are better than the TVC forecasts, but the best predictions are obtained with neural networks and especially when they are applied to the model using stock, bond, real estate, size, and book-to-market factors.

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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-35.

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Length: 37 pages
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Date of revision:
Handle: RePEc:chf:rpseri:rp0735

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Web page: http://www.SwissFinanceInstitute.ch
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Related research

Keywords: Forecasting; Multifactor Models; EREITs; Securitized Real Estate;

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Cited by:
  1. Daniele Bianchi & Massimo Guidolin, 2014. "Can Linear Predictability Models Time Bull and Bear Real Estate Markets? Out-of-Sample Evidence from REIT Portfolios," The Journal of Real Estate Finance and Economics, Springer, vol. 49(1), pages 116-164, July.
  2. Camilo Serrano & Martin Hoesli, 2012. "Fractional Cointegration Analysis of Securitized Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 319-338, April.
  3. Andrew Ang & Neil Nabar & Sam Wald, 2013. "Search for a Common Factor in Public and Private Real Estate Returns," NBER Working Papers 19194, National Bureau of Economic Research, Inc.
  4. Camilo Serrano & Martin Hoesli, . "Are Securitized Real Estate Returns more Predictable than Stock Returns?," Swiss Finance Institute Research Paper Series 08-27, Swiss Finance Institute.

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