Real estate returns predictability revisited: novel evidence from the US REITs market

Omokolade Akinsomi, Goodness C. Aye (), Vassilios Babalos (), Fotini Economou () and Rangan Gupta
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Goodness C. Aye: University of Pretoria
Vassilios Babalos: Technological Educational Institute of Peloponnese
Fotini Economou: Centre of Planning and Economic Research

Empirical Economics, 2016, vol. 51, issue 3, No 13, 1165-1190

Abstract: Abstract In this paper, we examine the real estate returns predictability employing US real estate investment trusts (REITs) and a set of possible predictors for the period January 1991–December 2014. To this end, we employ several forecasting models to test for REITs predictability under a flexible framework that captures parameter instability. Apart from the traditional factors examined in relevant studies, we also account for a series of sentiment and uncertainty indicators that may be significant predictors of REITs returns, especially during turbulent times when sentiment determines investment decisions to a greater extent. The empirical results indicate that the good predictors of REITs returns vary over time and over the forecast horizons. Our results suggest that economy-wide indicators, monetary policy instruments and sentiment indicators are among the most powerful predictors of REITs returns. In economic terms, an investment strategy that is based on our forecasts outperforms a buy and hold strategy. The issue of the most suitable forecasting method is also discussed in detail. Our results might entail implications for investors and market authorities.

Keywords: Real estate investment trusts; Return predictability; Dynamic model averaging; Uncertainty indicator (search for similar items in EconPapers)
JEL-codes: C22 C32 E52 R31 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (33)

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DOI: 10.1007/s00181-015-1037-5

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