Predictability of equity REIT returns: Implications for property tactical asset allocation

Asian Real Estate Society
Publication Type:
Journal Article
International Real Estate Review, 2008, 11 (2), pp. 29 - 43
Issue Date:
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This study presents further evidence of the predictability of excess equity REIT (real estate investment trust) returns. Recent evidence on forecasting excess returns using fundamental variables has resulted in diminishing returns from the 1990s onward. Trading strategies based on these forecasts have not significantly outperformed the buy/hold strategy of the 1990s. We have developed an alternative strategy that is based on the time variation of the risk premium of investors. Our results indicate that it is possible to outperform the buy/hold strategy by modeling the time variation of the risk premium. By modeling the dynamic behavior of the risk premium, we are able to implicitly capture economic risk premiums that are not captured by conventional multi beta asset pricing models.
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