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The Relation between Momentum and Drift: Industry-Level Evidence from Equity Real Estate Investment Trusts (REITs)

Last Updated on 10 February, 2024 by Rejaul Karim

In the Journal of Real Estate Research article titled “The Relation between Momentum and Drift: Industry-Level Evidence from Equity Real Estate Investment Trusts (REITs),” Zhilan Feng of Union College, S. McKay Price from Lehigh University, and C. F. Sirmans of Florida State University explore the intricate connection between two prevalent asset pricing anomalies: momentum and post-earnings-announcement drift.

While momentum has long been established in REIT returns, the incomplete reaction to earnings news, a more recent revelation, emerges as a complementary force. The research unveils a robust and negative relation between these phenomena in both the cross-section and time-series of industry-level returns.

Notably, the payoff to a REIT drift strategy surpasses that of a REIT momentum strategy in economic magnitude and statistical significance. This study contributes to a nuanced understanding of the interplay between momentum and drift in the context of Real Estate Investment Trusts, shedding light on their dynamic relationship across industry-level returns.

Abstract Of Paper

We examine the industry-level relation between the two dominant asset pricing anomalies, the continuation of past price movements (momentum) and the incomplete reaction to earnings news (post-earnings-announcement drift). With the former having long been established in REIT returns, and the latter having only recently been documented, we show that the two returns phenomena are highly related in both the cross-section and time-series of industry-level returns, and the relation is negative. Additionally, the payoff to a REIT drift strategy largely dominates the payoff to a REIT momentum strategy in terms of greater economic magnitude and statistical significance.

Original paper – Download PDF

Here you can download the PDF and original paper of The Relation between Momentum and Drift: Industry-Level Evidence from Equity Real Estate Investment Trusts (REITs).

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Author

Zhilan Feng
Union College

S. McKay Price
Lehigh University – Perella Department of Finance

C. F. Sirmans
Florida State University – Department of Risk Management, Insurance, Real Estate & Business Law

Conclusion

In this investigation by Zhilan Feng, S. McKay Price, and C. F. Sirmans, we delve into the industry-level interplay between two prominent asset pricing anomalies: momentum and post-earnings-announcement drift in Equity Real Estate Investment Trusts (REITs).

Despite momentum being a well-established factor in REIT returns and the relatively recent discovery of post-earnings-announcement drift, our study reveals a strong and negative relation between the two phenomena in both cross-section and time-series industry-level returns.

Remarkably, a REIT drift strategy outshines a momentum strategy, showcasing superior economic magnitude and statistical significance. This nuanced understanding of the interrelation between momentum and drift in the REIT context not only contributes to the literature on asset pricing anomalies but also provides valuable insights for market participants seeking to optimize their investment strategies in the real estate sector.

In summary, our research illuminates the intricate connection between momentum and post-earnings-announcement drift in REITs, offering a nuanced perspective that challenges conventional expectations and enhances the understanding of market dynamics within this specific asset class.

Related Reading:

Information Uncertainty and the Post-Earnings-Announcement Drift Anomaly: Insights from REITs

Deviations from Put-Call Parity and Stock Return Predictability

FAQ

– What are the main findings of the study regarding the relation between momentum and post-earnings-announcement drift in Equity Real Estate Investment Trusts (REITs)?

The study reveals a robust and negative relation between momentum and post-earnings-announcement drift in both the cross-section and time-series of industry-level returns of REITs. This suggests an intricate connection between these two prevalent asset pricing anomalies within the context of REIT returns.

– How does the payoff to a REIT drift strategy compare to that of a REIT momentum strategy, both in economic magnitude and statistical significance?

Remarkably, the payoff to a REIT drift strategy is shown to surpass that of a REIT momentum strategy in terms of greater economic magnitude and statistical significance. This finding indicates the potential superiority of a drift-based investment strategy over a momentum-based approach in the context of REITs.

– What is the significance of this research for market participants and those interested in real estate investments?

This research contributes to a nuanced understanding of the interplay between momentum and post-earnings-announcement drift in the realm of Equity REITs. The findings offer valuable insights for market participants and investors seeking to optimize their strategies in the real estate sector, challenging conventional expectations and providing a more comprehensive view of asset pricing anomalies in REIT returns.

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