Real Estate Mutual Funds: Herding, Momentum Trading and Performance

Abstract

This study jointly examines herding, momentum trading and performance in real estate mutual funds (REMFs). We do this using trading and performance data for 159 REMFs across the period 1998-2008. In support of the view that Real Estate Investment Trust (REIT) stocks are relatively more transparent, we find that stock herding by REMFs is lower in REIT stocks than other stock. Herding behavior in our data reveals a tendency for managers to sell winners, reflective of the "disposition effect." We find low overall levels of REMF momentum trading, but further evidence of the disposition effect when momentum trading is segregated into buy-sell dimensions. We test the robustness of our analysis using style analysis, and by reference to the level of fund dividend distribution. Our results for this are consistent with our conjecture about the role of transparency in herding, but they provide no new insights in relation to the momentum-trading dimensions of our analysis. Summarizing what are complex interrelationships, we find that neither herding nor momentum trading are demonstrably superior investment strategies for REMFs.

Herding behaviour in digital currency markets: An integrated survey and empirical estimation

“…The increasing popularity of real estate as a field for investigation has led to a nmber of papers that examine the linkage between herding behaviour and real estate markets. Ro and Gallimore (2014) , Babalos et al. (2015) , and Akinsomi et al.…”

Heterogeneous Investor Sentiment and Institutional Real Estate Investments

“…Marcato and Nanda () show that investor sentiment in unsecuritized real estate markets, measured by sentiment indices, contains valuable information for investors as it helps to predict changes in real estate returns. Considering that institutions have been found to rely upon other investors in their investment decisions in the stock market (Froot and Teo , Choi and Sias , Ro and Gallimore ), we expect that they also rely on the information contained in the sentiment of different office investor types to make investments in the unsecuritized and securitized office market.…”

“…Institutional investors such as pension funds and insurance companies have a multiasset investment focus comprising asset classes such as stocks, bonds and commercial real estate (Chun, Sa‐Aadu and Shilling ). In the stock market, institutional investors have been found to rely upon other investors in their decision‐making, and herd in and out of asset classes as a response to bounded rationality and the perception that other investors may have superior information ( e.g ., Froot and Teo , Choi and Sias , Ro and Gallimore ).…”

Investor Overconfidence and Trading Activity in the Asia Pacific REIT Markets

“…A transparent real estate market is also linked to rational behaviors. For instance, in a study on real estate mutual funds, the herding behavior is low in transparent real estate stocks (Ro and Gallimore 2014).…”