Momentum Profitability and Market Trend: Evidence from REITs

This study investigates Real Estate Investment Trusts’ momentum returns in different market states, and explains the momentum phenomenon with a risk-based dividend growth theory of Johnson (Journal of Finance 57:585–608, 2002). Our results show that momentum returns of REITs are higher during up markets. This study finds that winners’ dividend/price ratios are higher than those of losers, and momentum returns are positively correlated with the difference between winners’ and losers’ dividend/price ratios. We also find that momentum returns are higher after the legislation change of REITs in 1992, and that dividend/price ratios of REITs are also higher after 1992, suggesting that a persistent shock to REIT’s dividend/price ratios in 1992 partly explains REITs’ higher momentum returns after 1992. In sum, results of this study suggest that momentum returns of REITs can be jointly explained by a time-varying factor (market state) and a cross-sectional variance in dividend yields.

Asymmetric downside and upside co-movements between stock and REIT markets

This article aims to investigate whether stock and real estate investment trust (REIT) returns have asymmetric downside and upside co-movements. The investigation is carried out by employing a mixture copula with Markov-switching coefficients for weight, upper tail dependence and lower tail dependence. Empirical result demonstrates that an asymptotic independence and a positive relationship, which has greater dependence in the left tail than in the right tail, coexist. The empirical result provides useful information for making portfolio decisions. In the independent state, the inclusion of stock and REIT indices in a portfolio builds a diversified portfolio. However, a portfolio with stock and REIT assets cannot get the benefit of risk reduction in the positive dependence state.