Real Estate Mutual Funds: Herding, Momentum-Trading and Performance

Abstract

This study jointly examines herding, momentum trading and performance in real estate mutual funds (REMFs). We do this using trading and performance data for 159 REMFs across the period 1998-2008. In support of the view that REIT stocks are relatively more transparent, we find that stock herding by REMFs is lower in REIT stocks than other stock. Herding behavior in our data reveals a tendency for managers to sell winners, reflective of the “disposition effect”. We find low overall levels of REMF momentum-trading, but further evidence of the disposition effect when momentum-trading is segregated into buy-sell dimensions. We test the robustness of our analysis using style analysis, and by reference to the level of fund dividend distribution. Our results for this are consistent with our conjecture about of the role of transparency in herding, but provide no new insights in relation to the momentum-trading dimensions of our analysis. Summarizing what are complex inter-relationships, we find that neither herding nor momentum-trading are demonstrably superior investment strategies for REMFs.

Keywords: Real Estate Mutual Funds, Herding, Momentum-Trading