Are Securitized Real Estate Returns more Predictable than Stock Returns?

Are Securitized Real Estate Returns more Predictable than Stock Returns? This paper examines whether the predictability of securitized real estate returns differs from that of stock returns. It also provides a cross-country comparison of securitized real estate return predictability. In contrast to most of the literature on this issue, the analysis is not based on a multifactor asset pricing framework as such analyses may bias the results. We use a time series approach and thus create a level playing field to compare the predictability of the two asset classes. Forecasts are performed with ARMA and ARMA–EGARCH models and evaluated by comparing the entire empirical distributions of prediction errors, as well as with a trading strategy. The results, based on daily data for the 1990–2007 period, show that securitized real estate returns are generally more predictable than stock returns in countries with mature and well established REIT regimes. ARMA–EGARCH models are found to have portfolio outperformance potential even in the presence of transaction costs, with generally better results for securitized real estate than for stocks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Are Securitized Real Estate Returns more Predictable than Stock Returns?

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Publisher
Springer Journals
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-008-9162-y
Publisher site
See Article on Publisher Site

Abstract

This paper examines whether the predictability of securitized real estate returns differs from that of stock returns. It also provides a cross-country comparison of securitized real estate return predictability. In contrast to most of the literature on this issue, the analysis is not based on a multifactor asset pricing framework as such analyses may bias the results. We use a time series approach and thus create a level playing field to compare the predictability of the two asset classes. Forecasts are performed with ARMA and ARMA–EGARCH models and evaluated by comparing the entire empirical distributions of prediction errors, as well as with a trading strategy. The results, based on daily data for the 1990–2007 period, show that securitized real estate returns are generally more predictable than stock returns in countries with mature and well established REIT regimes. ARMA–EGARCH models are found to have portfolio outperformance potential even in the presence of transaction costs, with generally better results for securitized real estate than for stocks.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Nov 15, 2008

References

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