 Univariate Forecasting for REITs with Deep Learning: A Comparative Analysis with an ARIMA ModelBirger Axelsson () and
Han-Suck Song ()
No 23/10, Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance Abstract: This study aims to investigate whether the newly developed deep learning-based algorithms, specifically Long-Short Term Memory (LSTM), outperform traditional algorithms in forecasting Real Estate Investment Trust (REIT) returns. The empirical analysis conducted in this research compares the forecasting performance of LSTM and Autoregressive Integrated Moving Average (ARIMA) models using out-of-sample data. The results demonstrate that in general, the LSTM model does not exhibit superior performance over the ARIMA model for forecasting REIT returns. While the LSTM model showed some improvement over the ARIMA model for shorter forecast horizons, it did not demonstrate a significant advantage in the majority of forecast scenarios, including both recursive multi-step forecasts and rolling forecasts. The comparative evaluation reveals that neither the LSTM nor ARIMA model demonstrated satisfactory performance in predicting REIT returns out-of-sample for longer forecast horizons. This outcome aligns with the efficient market hypothesis, suggesting that REIT returns may exhibit a random walk behavior. While this observation does not exclude other potential factors contributing to the models' performance, it supports the notion of the presence of market efficiency in the REIT sector. The error rates obtained by both models were comparable, indicating the absence of a significant advantage for LSTM over ARIMA, as well as the challenges in accurately predicting REIT returns using these approaches. These findings emphasize the need for careful consideration when employing advanced deep learning techniques, such as LSTM, in the context of REIT return forecasting and financial time series. While LSTM has shown promise in various domains, its performance in the context of financial time series forecasting, particularly with a univariate regression approach using daily data, may be influenced by multiple factors. Potential reasons for the observed limitations of our LSTM model, within this specific framework, include the presence of significant noise in the daily data and the suitability of the LSTM model for financial time series compared to other problem domains. However, it is important to acknowledge that there could be additional factors that impact the performance of LSTM models in financial time series forecasting, warranting further investigation and exploration. This research contributes to the understanding of the applicability of deep learning algorithms in the context of REIT return forecasting and encourages further exploration of alternative methodologies for improved forecasting accuracy in this domain. Keywords: Forecasting; Equity REITs; deep learning; LSTM; ARIMA (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hhs:kthrec:2023_010 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance Department of Real Estate and Construction Management, Royal Institute of Technology, Teknikringen 10B, 100 44 Stockholm, Sweden. Contact information at EDIRC. |
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