An Examination of Herding Behavior in REITS

Abstract

This study examines the existence of herding effects in the US REITs market, constructing a survivorship-bias-free dataset of daily returns during the period January 2004-December 2009. Apart from documenting the existence of herding behavior by conducting comprehensive tests, we also explore new channels through which this may be intensified. Deterioration of investors’ sentiment and adverse macro-shocks to REITs funding conditions are found to be significantly related to the emergence of herding behavior. Contrary to common belief, however, the recent financial crisis did not seem to contribute to this phenomenon. Similarly, no asymmetric herding effects are documented during days of negative market returns.

Keywords: herd behavior, REITs, investors’ sentiment

JEL Classification: G15