A Review of the Noise Trader Model Concerning the NAV Spread in REIT Pricing: Evidence from the Pan EU REIT Market

Michael Mueller and Andreas Pfnuer

Journal of Real Estate Portfolio Management, 2013, vol. 19, issue 3, 189-205

Abstract: Executive Summary. This study investigates whether divergences between share prices and the net asset values (i.e., ‘‘NAV spreads’’) of real estate investment trusts (REITs) may be explained by irrational noise trader sentiment. In order to gain a solid foundation to this approach, we review the according noise trader model (NTM) by De Long, Shleifer, Summers, and Waldmann (1990) and Lee, Shleifer, and Thaler (1991) and test its premises. Our methods are predominantly determined by the primal NTM and concentrate on panel regression methodology. The results confirm that the model's premises are given in the context of the NAV spreads of REITs. Thus, the prices of REIT shares may reflect noise trader sentiment aside from fundamentals.

Date: 2013
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DOI: 10.1080/10835547.2013.12089952

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