Predicting Securitized Real Estate Returns: Financial and Real Estate Factors vs. Economic Variables

Camilo Serrano and Martin Hoesli
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Camilo Serrano: University of Geneva

No 09-08, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Securitized real estate returns have traditionally been forecasted using economic variables. However, no consensus exists regarding the variables to use. Financial and real estate factors have recently emerged as an alternative set of variables useful in forecasting securitized real estate returns. This paper examines whether the predictive ability of the two sets of variables differs. We use fractional cointegration analysis to identify whether long-run nonlinear relations exist between securitized real estate and each of the two sets of forecasting variables. That is, we examine whether such relationships are characterized by long memory, short memory, mean reversion (no long-run effects) or no mean reversion (no long-run equilibrium). Empirical analyses are conducted using data for the U.S., the U.K., and Australia. The results show that financial and real estate factors generally outperform economic variables in forecasting securitized real estate returns. Long memory (long-range dependence) is generally found between securitized real estate returns and stocks, bonds, and direct real estate returns, while only short memory is found between securitized real estate returns and the economic variables. Such results imply that to forecast securitized real estate returns, it may not be necessary to identify the economic variables that are related to changing economic trends and business conditions.

Keywords: Fractional Cointegration; Fractionally Integrated Error Correction Model (FIECM); Forecasting; Multifactor Models; Securitized Real Estate; REITs (search for similar items in EconPapers)
JEL-codes: C53 G11 G17 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-03
New Economics Papers: this item is included in nep-bec, nep-fmk, nep-for and nep-ure
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Working Paper: Predicting Securitized Real Estate Returns: Financial and Real Estate Factors vs. Economic Variables (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0908

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