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Abstract
Executive Summary. Extant research has increasingly focused on investor psychology to understand market behavior. One area of interest has been investor overconfidence. The overconfidence paradigm provides several testable hypotheses. These propositions have been empirically validated for stocks but after specifically excluding real estate investment trusts (REITs). Extant literature suggests portfolio managers consider REITs to be an "asset-class" distinct from stocks. This study examines the applicability of the overconfidence paradigm to REITs. The results show that realized returns do lead trading volume in REITs, a finding consistent with investor confidence. Overconfident trading varies with REIT size. The study finds that the REIT market has a dynamism that is distinct from the general stock market. Only weak evidence is found indicating that overconfident investors tend to trade in stocks with high levels of firm-specific risk following market gain.