Serial Persistence in Equity REIT Returns

Graff, Richard A.; Young, Michael

doi:10.1080/10835547.1997.12090910

Cited by 45 publications

(11 citation statements)

References 16 publications

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“…Ro and Gallimore, 2013;Sias, 2004;Badrinath and Wahal, 2002;Nofsinger and Sias, 1999) suggest that institutional investment decisions may not be entirely based on rational expectations about the future. The focus on institutional investors is particularly relevant, as institutional ownership in REITs has been continuously increasing since the beginning of the new "REIT era" (Devos et al, 2013;Lee, Lee and Chiang, 2008;Clayton and MacKinnon, 2003b;Below, Stansell and Coffin, 2000;Graff and Young, 1997). Our study also complements previous studies such as Below, Stansell and Coffin (2000), who investigate fundamentals-based determinants of institutional demand in REIT stocks in line with traditional capital asset pricing theory, by analyzing behavioral determinants of institutional investor demand for REITs.…”

Section: Introductionmentioning

confidence: 75%

“…This suggests the existence of a "real estate category", based on the real estate industry, in which investors style-invest in line with Choi and Sias (2009). Graff and Young (1997) present evidence that institutional investors herd in and out of REIT stocks, based on the performance of the underlying commercial real estate market. If institutional investors indeed style-invest in the real estate category, we expect a positive relationship between the sentiment of institutional investors in the private market and their trading behavior in the public market.…”

Section: Literature Reviewmentioning

confidence: 81%

“…Previous studies have shown that institutional investors prefer larger and older stocks (Devos et al, 2013;Below, Stansell and Coffin, 2000;Graff and Young, 1997), which can be considered the habitat of institutional investors. Clayton and MacKinnon (2003b) provide further support for an institutional investor habitat characterized by large cap REITs.…”

Section: [Insert Table 3 Here]mentioning

confidence: 99%

“…Institutional real estate investors commonly invest in real estate via investments in commercial real estate and publicly traded real estate investment trusts (REITs; Dhar and Goetzmann, 2006;Clayton and MacKinnon, 2003a;Ciochetti et al, 2002). Exposure to the private real estate market provides institutional investors with an information advantage about fundamentals when they trade REITs, whose pricing is ultimately driven by underlying asset values (Graff and Young, 1997).…”

Section: Introductionmentioning

confidence: 99%

“…The flight to liquidity theory predicts a sentiment-induced capital switching from illiquid unsecuritized investments to more liquid securitized assets due to perceived liquidity risk. Previous studies provide evidence for both, an institutional style investing in REITs (Ambrose, Lee and Peek, 2007;Graff and Young, 1997) as well as a flight to quality/liquidity within the REIT market (Devos et al, 2013) or capital switching between REIT and commercial real estate market (Lee, Lee and Chiang, 2008).…”

Section: Introductionmentioning

confidence: 99%

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An Investigation into Sentiment-Induced Institutional Trading Behavior and Asset Pricing in the REIT Market

Das¹,

Freybote

Marcato

2014

J Real Estate Finan Econ

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Institutional investors such as pension funds or insurance companies commonly invest in the unsecuritized and securitized real estate market. We investigate how institutional investor sentiment in the commercial real estate market affects institutional trading behavior in the REIT market and subsequently asset pricing. In particular, we test two alternative theoriesflight to liquidity and style investing theory -to explain the sentiment-induced trading behavior of institutional investors in the REIT market for the pre-crisis (2002-2006), crisis (2007-2009) and post-crisis (2010)(2011)(2012) period. We find that the applicability of either theory depends on economic conditions. In the pre-crisis period institutional investors switched capital in and out of REITs based on their sentiment in the private market (style investing). However, in the crisis period institutional investors switched capital from the illiquid private market to the more liquid REIT market (flight to liquidity). The flight to more liquid REITs continued into the post-crisis to a lesser extent and suggests that the financial crisis has changed institutional investment behavior. Our findings hold across different groups of REITs (e.g. high and low institutional ownership, S&P and non-S&P REITs) and property types. We also find that institutional real estate investor sentiment introduces a non-fundamental component into REIT pricing.

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