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Are Securitized Real Estate Returns more Predictable than Stock Returns?

Author

Listed:
  • Camilo Serrano

    (University of Geneva (HEC),)

  • Martin Hoesli

    (University of Geneva (HEC and Swiss Finance Institute), University of Aberdeen (Business School), Bordeaux Ecole de Management)

Abstract

This paper examines whether the predictability of securitized real estate returns differs from that of stock returns. It also provides a cross-country comparison of securitized real estate return predictability. In contrast to most of the literature on this issue, the analysis is not based on a multifactor asset pricing framework as such analyses may bias the results. We use a time series approach and thus create a level playing field to compare the predictability of the two asset classes. Forecasts are performed with ARMA and ARMA-EGARCH models and evaluated by comparing the entire empirical distributions of prediction errors, as well as with a trading strategy. The results, based on daily data for the 1990-2007 period, show that securitized real estate returns are generally more predictable than stock returns in countries with mature and well established REIT regimes. ARMA-EGARCH models are found to have portfolio outperformance potential even in the presence of transaction costs, with generally better results for securitized real estate than for stocks.

Suggested Citation

  • Camilo Serrano & Martin Hoesli, "undated". "Are Securitized Real Estate Returns more Predictable than Stock Returns?," Swiss Finance Institute Research Paper Series 08-27, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp0827
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Felix Schindler, 2013. "Predictability and Persistence of the Price Movements of the S&P/Case-Shiller House Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 44-90, January.
    2. Pisun Xu & Jian Yang, 2011. "U.S. Monetary Policy Surprises and International Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 43(4), pages 459-490, November.
    3. Ghysels, Eric & Plazzi, Alberto & Valkanov, Rossen & Torous, Walter, 2013. "Forecasting Real Estate Prices," Handbook of Economic Forecasting, Elsevier.
    4. Zheng, Min & Wang, Hefei & Wang, Chengzhang & Wang, Shouyang, 2017. "Speculative behavior in a housing market: Boom and bust," Economic Modelling, Elsevier, vol. 61(C), pages 50-64.
    5. 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.
    6. Schindler, Felix & Voronkova, Svitlana, 2010. "Linkages between international securitized real estate markets: Further evidence from time-varying and stochastic cointegration," ZEW Discussion Papers 10-051, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. Felix Schindler, 2014. "Persistence and Predictability in UK House Price Movements," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 132-163, January.
    8. Schindler, Felix, 2009. "Long-term benefits from investing in international real estate," ZEW Discussion Papers 09-023, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    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. repec:eee:pacfin:v:47:y:2018:i:c:p:92-108 is not listed on IDEAS
    11. MeiChi Huang & Tzu-Chien Wang, 2015. "Housing-bubble vulnerability and diversification opportunities during housing boom–bust cycles: evidence from decomposition of asset price returns," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 605-637, March.
    12. Brett Olsen & Jeffrey Stokes, 2015. "Is Farm Real Estate The Next Bubble?," The Journal of Real Estate Finance and Economics, Springer, vol. 50(3), pages 355-376, April.
    13. John Cotter & Richard Roll, 2015. "A Comparative Anatomy of Residential REITs and Private Real Estate Markets: Returns, Risks and Distributional Characteristics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 209-240, March.

    More about this item

    Keywords

    Predictability; Time Series Models; ARMA-EGARCH; REITs; Securitized Real Estate;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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