Price Reversal, Transaction Costs, and Arbitrage Profits in Real Estate Securities Market

Jianping (J.P.) Mei and Bin Gao

Chapter 5 in Asset Pricing, 2003, pp 101-117 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper studies the return reversals of exchange-traded real estate securities using an arbitrage portfolio approach. Using the approach, we find that there exist significant return reversals in such securities. These return reversals could be exploited by arbitrage traders if trading costs can be ignored. However, the arbitrage profits disappear after deducting trading costs and taking into account the implicit cost of bid–ask spread. Thus, the real estate securities market is efficient at weekly intervals in the sense that one could not exploit the price reversals via some simple trading rules.

Date: 2003
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