Forecasting EREIT Returns

Abstract

This paper analyzes the role played by financial assets, direct real estate, and the Fama and French factors in explaining EREIT returns and examines the usefulness of these variables in forecasting returns. Four models are analyzed and their predictive potential is assessed by comparing three forecasting methods: time varying coefficient (TVC) regressions, vector autoregressive (VAR) systems, and neural networks models. Trading strategies on these forecasts are compared to a passive buy-and-hold strategy. The results show that EREIT returns are better explained by models including the Fama and French factors. The VAR forecasts are better than the TVC forecasts, but the best predictions are obtained with neural networks and especially when they are applied to the model using stock, bond, real estate, size, and book-to-market factors.

Media-expressed negative tone and firm-level stock returns

“…The VAR models take the familiar form: 20 Applications of VARs in finance have a pedigree; see, for example, Booth et al, (2002); Brandt and Kang (2004); Lee and Rui (2007); Booth and Gurun (2008); Joslin, Le and Singleton (2013); and Maio and Santa-Clara (2015). Applications of time-varying VARs include Serrano and Hoesli (2007); Benati and Goodhart (2008); and Koop and Tole (2013). we should incorporate these long-term cointegrating relations in our VAR models for each firm -by specifying the associated error correction models.…”

Fractional Cointegration Analysis of Securitized Real Estate

“…Overall, the general conclusions at an international level suggest that securitized real estate returns are positively related to stock and real estate returns, but negatively related to bond returns (Hoesli and Serrano 2007). The only study that examines the usefulness of such factors to forecast securitized real estate returns is that of Serrano and Hoesli (2007). They use the hybrid nature of EREITs to compare the predictive potential of four different model specifications with time varying coefficient (TVC) regressions, VAR systems, and neural networks models.…”

Time-varying beta during the 2008 financial crisis – evidence from North America and Western Europe

“…There now exists widespread evidence that beta is unstable over time (Blume, 1971; Fama and Macbeth, 1973; Fabozzi and Francis, 1978; Sunder, 1980, among others). Focusing on Real Estate Investment Trusts (REITs), several studies suggest that the market beta of REITs is not constant (Clayton and Mackinnon, 2001; Serrano and Hoesli, 2007; Basse et al , 2009, among others).…”