An investigation into REIT performance persistency

Abstract

Using equity real estate investment trust (EREIT) returns from the CRSP/Ziman REITs database, portfolios of Real Estate Investment Trusts (REITs) are ranked based on past performance and evaluated for persistence in future years using various performance measurement models. After adjusting for risk with Carhart’s (1997) 4‐factor model, we find no evidence of persistence. However, we do find strong evidence of performance reversal with two‐year and three‐year lagged return periods and holding periods. The results suggest investors tend to overreact based on long‐term performance records. Thus investors seem to take a much longer period of time to formulate an opinion regarding a REIT’s performance record than previously assumed by earlier researchers.

Keywords:

• REITs
• portfolio
• persistence
• performance reversal
• momentum

Acknowledgements

The authors would like to thank Professor David Ling, Professor Karen Gibler, Professor Paul Gallimore and Professor Thomas Springer for their assistance in the completion of this paper. Also, we thank two anonymous referees of this journal and the editor, Bryan MacGregor for their helpful comments.

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