Momentum Effects and Mean Reversion in Real Estate Securities

Abstract

This article is the winner of the International Real Estate Investment/ Portfolio Management manuscript prize (sponsored by LaSalle Investment Management) presented at the American Real Estate Society Annual Meeting. This article tests for the presence of both price continuation and price reversals in international real estate securities. The results reveal evidence of performance persistence in international markets over short and medium term horizons, however the evidence on price reversals is less compelling. The empirical analysis tests for mean reversion using Variance Ratio and Augmented Dickey-Fuller tests. In neither case is there consistent evidence of mean reversion in international real estate securities. The portfolio switching tests do reveal some evidence of performance reversals. However, while under-performing markets do outperform over longer horizons, they do not do so at statistically significant levels.