The Journal of Real Estate Finance and Economics

, 39:450

Investor Sentiment and REIT Returns

Authors

    • Lumpkin Hall, School of BusinessEastern Illinois University
  • Hamid Rahman
    • Marshall Goldsmith School of BusinessAlliant International University
  • Kenneth Yung
    • College of Business and Public AdministrationOld Dominion University
Article

DOI: 10.1007/s11146-008-9115-5

Cite this article as:
Lin, C.Y., Rahman, H. & Yung, K. J Real Estate Finan Econ (2009) 39: 450. doi:10.1007/s11146-008-9115-5

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 trustInvestor sentimentInstitutional investors

Copyright information

© Springer Science+Business Media, LLC 2008