Heterogeneous Investor Sentiment and Institutional Real Estate Investments

23 Pages Posted: 20 Jan 2017

See all articles by Julia Freybote

Julia Freybote

Portland State University

Philip Seagraves

Middle Tennessee State University

Date Written: Spring 2017

Abstract

Commercial real estate investors differ in their sentiment due to factors such as market expertise, investment strategies and expectations about future market conditions. Focusing on the office market, we investigate whether investors with a multiasset investment focus such as pension funds or insurance companies rely on the sentiment of specialized real estate investors such as public REITs or private developers/owners as source of information in their investment decision‐making. Using disaggregated sentiment measures and vector autoregression (VAR) we find evidence that changes in REIT and private real estate investor sentiment lead to changes in institutional investor sentiment in the suburban office and office REIT market. Our findings suggest that institutional investors rely on the sentiment of specialized real estate investors to make real estate investment decisions. Our study contributes to the existing literature on sentiment in commercial real estate markets by emphasizing the heterogeneity of investor sentiment and introducing a disaggregated sentiment measure. We also contribute to the institutional herding literature.

Suggested Citation

Freybote, Julia and Seagraves, Philip, Heterogeneous Investor Sentiment and Institutional Real Estate Investments (Spring 2017). Real Estate Economics, Vol. 45, Issue 1, pp. 154-176, 2017. Available at SSRN: https://ssrn.com/abstract=2902379 or http://dx.doi.org/10.1111/1540-6229.12132

Julia Freybote (Contact Author)

Portland State University ( email )

PO Box 751
Portland, OR 97207
United States

Philip Seagraves

Middle Tennessee State University ( email )

Murfreesboro, TN 37132
United States

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