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The day-of-the-week effect is weak: Evidence from the European real estate sector

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Abstract

The day-of-the-week effect for the securitized real estate indices is investigated by employing daily data at the global, European and country level for the period 1990 to 2010. We test for daily seasonality in 12 countries using both full sample and rolling-regression techniques. While the evidence for the former is in line with the literature, the results for the latter cast severe doubts concerning the existence of any persistent day-of-the-week effects. Once we allow our sample to vary over time, the average proportion of significant coefficients per day ranges between 15 % and 24 %. We show that higher average Friday returns evident in previous literature, remain significant in 21 % of the rolling samples. We conclude that daily seasonality in the European Real Estate sector is subject to the data mining and sample selection bias criticism.

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Notes

  1. The ‘traditional’ weekend effect refers to the case where assets display significantly lower returns over the period between Friday’s close and Monday’s close.

  2. EPRA represents the European publicly traded real estate sector and 90 % of the market capitalization of the FTSE EPRA/NAREIT Europe Index. Its members manage commercial and residential property assets, with the vast majority being located in the major cities in Europe. Their membership also includes the institutional investors such as pension funds, investment managers and insurance companies that manage investments in real estate indirectly via these listed property companies.

  3. Real estate investment Trusts (REITs) are tax transparent entities. Whilst the detailed regulatory structure varies across countries and, in most of cases REITs have to comply with a number of restrictions regarding a minimum dividend payout ratio and the imposition of constraints concerning the proportion of the firm’s assets and income derived from real estate activity. Other limitations imposed in areas such as gearing, international operations and development activity.

  4. The introduction of REITs by national governments in Europe was made in order to enable retail investors’ access to a high quality, transparent and liquid form of real estate investment. Nevertheless, the development of REIT regimes occurred at different stages around the globe and within Europe. Many differences still exist in the detailed legislation of REIT regimes, as individual governments impose their own specific requirements and policy objectives for investment vehicles residing and investing in their own jurisdiction.

  5. Chan et al. (2005) support the claim that the change in the US REIT market structure and the increase in institutional participation in the 1990s make US REIT stocks behave more like other equities in the stock market.

  6. To the best of our knowledge only Lenkkeri et al. (2006) have employed the same dataset for calendar anomalies.

  7. Gregoriou et al. (2004) support that the small average excess returns documented by researchers is not likely to generate net gains when employed in a trading strategy once the transaction costs have been taken into account.

  8. Schwert (2003) provides a survey on data mining in relation to returns anomalies, including the calendar specific anomalies.

  9. In the case of Spain the data series exhibit discontinuities from 09/30/2006 to 12/17/2006. In order to overcome this problem, linear interpolation was employed.

  10. The finding of leptokurtosis and skewness in securitized real estate returns has been discussed by Bond and Patel (2002)

  11. The autoregressive term accounts for statistically significant but economically minor autocorrelation and correct for possible effects of non-synchronous trading.

  12. Bollerslev and Wooldridge (1992), pointed out that the assumption of the normality of the standardized conditional errors may be too strong and can cause misspecification of the likelihood function. To deal with this, Bollerslev and Wooldridge (1992) suggest the use of Quasi Maximum Likelihood Estimation (QMLE).

  13. The results for the GED distribution are availble from the authors upon request.

  14. Most tests for equal variances appear to be sensitive to departures from normality or to the presence of outliers and heteroskedasticity. Conover et al. (1981) list and compare 60 methods for testing the homogeneity of variance assumptions and show that Brown-Forsythe procedure outperforms all the other procedures.

  15. Not reported but available from the authors upon request.

  16. Doornik and Ooms (2008) argue that standard estimates in models involving dummy variables in conditional means of GARCH regression models have to be treated with great care because of the danger of multimodality, which is more likely to occur when dummies effects take place before or within volatile periods. In our study, in order to minimize the danger of multimodality, different initial values were considered and the outcome was not qualitatively different. The results are available from the authors upon request.

  17. The level of significance is 5 %, unless otherwise noted.

  18. The authors support that the disappearance of Monday seasonality coincides with the increase in institutional investors in the US REIT market during 1990s.

  19. For GJR-GARCH models we calculate the sum: α+β+γ/2, for the stationarity of variance.

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Authors and Affiliations

  1. Department of Economics, University of Macedonia, Macedonia, Greece

    Georgios Bampinas, Stilianos Fountas & Theodore Panagiotidis

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  1. Georgios Bampinas
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  2. Stilianos Fountas
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  3. Theodore Panagiotidis
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Correspondence to Theodore Panagiotidis.

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Bampinas, G., Fountas, S. & Panagiotidis, T. The day-of-the-week effect is weak: Evidence from the European real estate sector. J Econ Finan 40, 549–567 (2016). https://doi.org/10.1007/s12197-015-9325-7

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  • DOI: https://doi.org/10.1007/s12197-015-9325-7

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