Are Securitized Real Estate Returns more Predictable than Stock Returns? |
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Authors: | Camilo Serrano Martin Hoesli |
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Institution: | (1) University of Geneva (HEC), 40 boulevard du Pont-d’ Arve, CH-1211 Geneva 4, Switzerland;(2) University of Geneva (HEC and SFI), 40 boulevard du Pont-d’ Arve, CH-1211 Geneva 4, Switzerland;(3) University of Aberdeen (Business School), Edward Wright Building, Aberdeen, AB24 3QY, Scotland, UK;(4) Bordeaux Ecole de Management (CEREBEM), F-33405 Talence Cedex, France |
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Abstract: | This paper examines whether the predictability of securitized real estate returns differs from that of stock returns. It also
provides a cross-country comparison of securitized real estate return predictability. In contrast to most of the literature
on this issue, the analysis is not based on a multifactor asset pricing framework as such analyses may bias the results. We
use a time series approach and thus create a level playing field to compare the predictability of the two asset classes. Forecasts
are performed with ARMA and ARMA–EGARCH models and evaluated by comparing the entire empirical distributions of prediction
errors, as well as with a trading strategy. The results, based on daily data for the 1990–2007 period, show that securitized
real estate returns are generally more predictable than stock returns in countries with mature and well established REIT regimes.
ARMA–EGARCH models are found to have portfolio outperformance potential even in the presence of transaction costs, with generally
better results for securitized real estate than for stocks. |
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