The Predictability of Equity REIT Returns: Time Variation and Economic Significance

Abstract

This paper presents evidence on predictability of excess returns for equity REITs relative to the aggregate stock market, small capitalization stocks, and T-bills using best fit models from prior time periods. We find that excess equity REIT returns are far less predictable out-of-sample than in-sample. This inability to forecast out-of-sample is particularly true in the 1990s. Nevertheless, in the absence of transaction costs, active trading strategies based on out-of-sample predictions modestly outperfr om REIT buy-and-hold strategies. However, when transaction costs are introduced, profits from these active trading strategies largely disappear.

JEL Classification: G12