Investor Return in REITs: Evidence of Market Timing and Capacity Constraints

This dissertation studies the returns earned in Real Estate Investment Trusts (REITs) from the point of view of the average investor. Traditional buy-and-hold returns while appropriate as a measure of return for financial asset may not adequately reflect the returns of the average individual investor because they do not take into account the capital flows in and out of an asset. Just as their name suggests, these are the returns one would earn if one buys a financial asset or portfolio at the beginning of a period and holds the investment until the end without making changes to the amount or composition of the investment. Most investors however make contributions, withdraw or rebalance their portfolios, making buy-and-hold returns unsuitable for measuring the returns of individual investors. Depending on how they time their cash flows, individual investors could perform significantly better or worse than the financial asset they are investing in. In addition capacity constrains to the return generating mechanism could be revealed as investors increase their cash involvement into an asset. Dollar weighted returns and dollar weighted average returns are alternative measures that accounts for all cash flows in and out of the investment. By contrasting investor centered returns to the conventional buy and hold returns this dissertation sheds light on the overall ability of investors to time the REIT market and the capacity constraints that they encounter