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Bridge over ocean
27 February 2018 Financial Analysts Journal

REIT Momentum and the Performance of Real Estate Mutual Funds

  1. Jeroen Derwall
  2. Joop Huij
  3. Dirk Brounen
  4. Wessel Marquering

REITs exhibit a strong and prevalent momentum effect that is not captured by
conventional factor models. This REIT momentum anomaly hampers proper judgments
about the performance of actively managed REIT portfolios. In contrast, a REIT
momentum factor adds incremental explanatory power to performance attribution
models for REIT portfolios. Using this factor, this study finds that REIT
momentum explains a great deal of the abnormal returns that actively managed
REIT mutual funds earn in aggregate. Accounting for exposure to REIT momentum
also materially influences cross-sectional comparisons of the performances of
REIT mutual funds. This study has important implications for performance
evaluation, alpha–beta separation, and manager selection and
compensation.