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An Empirical Investigation of Herding Behavior in the U.S. REIT Market

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  • Jian Zhou

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  • Randy Anderson

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Abstract

Our study investigates the market-wide herding behavior in the U.S. equity REIT market. Utilizing the quantile regression method, we find that herding is more likely to be present in the high quantiles of the REIT return dispersion. This implies that REIT investors tend to herd under turbulent market conditions. Our results also support the asymmetry of herding behaviors, that is, herding is more likely to occur and becomes stronger in declining markets than in rising markets. In addition, our findings show that the current financial crisis has caused a change in the circumstances under which herding can occur, as we find that during the current crisis REIT investors may not start to herd until the market becomes extremely turbulent whereas during the relatively normal period before the crisis, investors tend to herd when the market is moderately turbulent. Finally, we find that compared with the case of the ‘pre-modern’ era, REIT investors are more likely to herd in the ‘modern’ era, during which herding usually occurs when the market becomes tumultuous. This implies that the switch of REITs from passive externally managed entities into active self-managed ones has made the investors more responsive to market sentiment. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Jian Zhou & Randy Anderson, 2013. "An Empirical Investigation of Herding Behavior in the U.S. REIT Market," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 83-108, July.
  • Handle: RePEc:kap:jrefec:v:47:y:2013:i:1:p:83-108
    DOI: 10.1007/s11146-011-9352-x
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Benjamin M. Blau & Ryan J. Whitby, 2014. "Speculative Trading In Reits," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(1), pages 55-74, February.
    2. Omokolade Akinsomi & Yener Coskun & Rangan Gupta, 2016. "Analysis of Herding in REITs of an Emerging Market: The Case of Turkey," Working Papers 201666, University of Pretoria, Department of Economics.
    3. repec:bpj:ajlecn:v:7:y:2016:i:3:p:369-383:n:2 is not listed on IDEAS
    4. repec:eee:ecofin:v:42:y:2017:i:c:p:107-131 is not listed on IDEAS
    5. Omokolade Akinsomi & Yener Coskun & Rangan Gupta & Chi Keung Marco Lau, 2016. "Impact of Volatility and Equity Market Uncertainty on Herd Behavior: Evidence from UK REITs," Working Papers 201688, University of Pretoria, Department of Economics.
    6. repec:kap:jrefec:v:56:y:2018:i:2:d:10.1007_s11146-016-9593-9 is not listed on IDEAS
    7. Viktoriya Lantushenko & Edward Nelling, 2017. "Institutional Property-Type Herding in Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 459-481, May.
    8. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Asian Real Estate Society, vol. 18(1), pages 1-43.
    9. Omokolade Akinsomi & Goodness C. Aye & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2016. "Real estate returns predictability revisited: novel evidence from the US REITs market," Empirical Economics, Springer, vol. 51(3), pages 1165-1190, November.
    10. Martin Hoesli & Kustrim Reka, 2015. "Contagion Channels between Real Estate and Financial Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 101-138, March.
    11. Economou, Fotini & Katsikas, Epameinondas & Vickers, Gregory, 2016. "Testing for herding in the Athens Stock Exchange during the crisis period," Finance Research Letters, Elsevier, vol. 18(C), pages 334-341.
    12. Vassilios Babalos & Mehmet Balcilar & Rangan Gupta, 2014. "Revisiting Herding Behavior in REITs: A Regime-Switching Approach," Working Papers 201448, University of Pretoria, Department of Economics.
    13. Geoffrey M. Ngene & Daniel P. Sohn & M. Kabir Hassan, 2017. "Time-Varying and Spatial Herding Behavior in the US Housing Market: Evidence from Direct Housing Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 482-514, May.
    14. repec:eco:journ1:2017-02-85 is not listed on IDEAS
    15. Litimi, Houda & BenSaïda, Ahmed & Bouraoui, Omar, 2016. "Herding and excessive risk in the American stock market: A sectoral analysis," Research in International Business and Finance, Elsevier, vol. 38(C), pages 6-21.

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    Keywords

    Herding; REITs; Quantile regression; Asymmetry;

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