Investor Sentiment and Reit Returns

Posted: 10 Aug 2009

See all articles by Crystal Yan Lin

Crystal Yan Lin

Eastern Illinois University - School of Business

Hamid Rahman

U.S. International University - College of Business Administration

Kenneth Yung

Old Dominion University - Finance

Date Written: August 5, 2009

Abstract

Recent advances in the field of behavioral finance have given a fillip to the use of behavioral factors in asset pricing models. This study adds to the understanding of the REIT return generating process by exploring the behavioral impact of investor sentiment on REIT returns. The results show that when investors are optimistic (pessimistic), REIT returns become higher (lower). These findings are robust when conventional control variables are considered. Empirical analysis indicates steady erosion in the importance of the default and term structure interest rate variables previously considered as important determinants of REIT returns. Previous noise trading papers that consider the impact of institutional traders conclude that institutional investors cannot arbitrage away noise trader risk. The results of this paper find an exception in the case of small REITs. Examination of REITs based on size reveals that the return generating process of small REITs differs from that of mid-size and large REITs. Analysis of the return generating process by performance shows high performance REITs are more sensitive to the independent variables in the model as compared to the low and mid performance REITs.

Keywords: real estate investment trust, investor sentiment, institutional investors

Suggested Citation

Lin, Crystal Yan and Rahman, Hamid and Yung, Kenneth, Investor Sentiment and Reit Returns (August 5, 2009). Journal of Real Estate Finance and Economics, Vol. 39, No. 4, 2009. Available at SSRN: https://ssrn.com/abstract=1444537

Crystal Yan Lin (Contact Author)

Eastern Illinois University - School of Business ( email )

Charleston, IL 61920-3099
United States

Hamid Rahman

U.S. International University - College of Business Administration ( email )

10455 Pomerado Road
San Diego, CA 92131-1799
United States

Kenneth Yung

Old Dominion University - Finance ( email )

School of Business and Public Administration
Norfolk, VA 23529-0222
United States
757-683-3573 (Phone)

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