Type of Document Dissertation Author Zhou, Xiaorong Author's Email Address xzhou3@gmail.com URN etd-01092009-123635 Title An Investigation into REIT Performance Persistency Degree Ph.D. Department Real Estate Advisory Committee
Advisor Name Title Dr. Alan Ziobrowski Committee Chair Dr. Karen Gibler Committee Member Dr. Paul Gallimore Committee Member Dr. Thomas Springer Committee Member Keywords
- overreaction
- reversal
- REITs
- persistence
Date of Defense 2008-12-17 Availability unrestricted Abstract ABSTRACT
AN INVESTIGATION INTO REIT PERFORMANCE PERSISTENCY
BY
XIAORONG ZHOU
Committee Chair: Dr. Alan Ziobrowski
Major Department: Real Estate
Using a sample of EREIT returns during the period 1993 to 2006 from the CRSP/Ziman REITs database, I construct portfolios of equity REITs based on past raw returns and evaluate their raw returns and risk-adjusted returns during the holding period for persistence. After adjusting for risk with Carhart (1997)’s 4-factor model, I find no evidence of persistence. By implication, a momentum strategy of buying historical winners and short-selling losers does not generate statistically significant abnormal returns.
However, I do find strong evidence of performance reversal based on two-year and three-year ranking and holding periods. Consistent with DeBondt and Thaler (1985)’s overreaction theory, investors tend to overreact based on long-term rather than short-term performance records. This would suggest that investors tend to take a much longer period of time to formulate an opinion regarding a REIT’s performance record than previously assumed by earlier researchers. While there is a measurable tendency toward performance reversal, the return spread between the best performing EREITs and worst performing EREITs is marginal. This would indicate that the REIT markets are behaving in a generally efficient fashion.
The investigation of the association of EREIT characteristics and performance persistence suggests a property type focus and geographic diversification strategy for EREITs. At the same time, EREITs with high leverage also tend to exhibit good performance persistently.
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