An investigation into the profitability and sustainability of market timing strategies in Real Estate Investment Trusts (REITs): A global perspective

Barry, Nortimer

An investigation into the profitability and sustainability of market timing strategies in Real Estate Investment Trusts (REITs): A global perspective

Master Thesis

2022

Abstract

The buying and selling activity of market participants creates dynamic movements in the prices of listed securities. Investors typically aim to realise short term profit from this volatility using market timing strategies. Several studies have explored the reliability of market timing rules across asset classes. The unique properties of Real Estate Investment Trusts (REITs) and the consequent potential predictability in the returns of this asset class has raised the question of whether market timing strategies can be successfully applied to this asset class. This study investigates the effectiveness of market timing strategies on REITs and whether the effectiveness of these strategies persists through market crises. The study covers the period from January 2001 to December 2020 and employs data from six of the largest REITs markets globally – the United States, Japan, United Kingdom, Australia, Brazil, and South Africa. Four market timing strategies are studied: the moving average, time series momentum, modified moving average crossover, and dual momentum, and, as such, the analysis provides a comparison of market timing strategies that are seldom observed together. The effectiveness of these strategies is also tested over three periods covering the Global Financial Crisis, European Sovereign Debt crisis; and the Covid-19 pandemic. In general, the MA and TSM market timing rules exhibited very similar performance while the MMAC and DM market timing rules exhibited the highest returns. Of the four market timing rules, the DM market timing rule exhibited the highest return with the lowest overall risk, indicating that it has the highest predictive ability of the four rules. The findings of this study are useful for investors aiming to generate returns from short-term market fluctuations.

Keywords

Investment Management

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