Skip to main content
SpringerLink
Log in

Have Equity REITs Experienced Periodically Collapsing Bubbles?

  • Published:
The Journal of Real Estate Finance and Economics Aims and scope Submit manuscript

Abstract

This paper uses the momentum threshold autoregressive (MTAR) model and the residuals-augmented Dickey–Fuller (RADF) test to examine the possibility of Evans’ (1991) periodically collapsing bubbles in the equity REIT market. The results are mixed. The MTAR model indicates that overall real equity REIT prices and dividends are cointegrated with asymmetric adjustment towards the long-run equilibrium. However, the estimated coefficients of the MTAR model do not indicate the presence of periodically collapsing bubbles. Adjustment in the standard cointegration tests of bubbles for skewness and excess kurtosis via the RADF test fails to reject the null hypothesis of no cointegration, leaving the possibility of periodically collapsing bubbles. The MTAR and RADF results with respect to equity REIT sub-sectors are mixed. Lodging is the only sub-sector in which both the MTAR and RADF results support periodically collapsing bubbles. Moreover, market fundamentals proxied by two alternative measures of capacity utilization do not explain either real equity REIT prices or dividends.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Abraham, J., & Hendershott, P. H.(1996). Bubbles in metropolitan housing markets. Journal of Housing Research, 7, 191–207.

    Google Scholar 

  • Below, S. D., Kiely, J. K., & McIntosh, W. (1996). REIT pricing efficiency: Should investors still be concerned? Journal of Real Estate Research, 12(3), 397–412.

    Google Scholar 

  • Bjorklund, K., & Soderberg, B. (1999). Property cycles, speculative bubbles and the gross income multiplier. Journal of Real Estate Research, 18(1), 151–174.

    Google Scholar 

  • Bohl, M. T. (2003). Periodically collapsing bubbles in the US stock market? International Review of Economics and Finance, 12, 385–397.

    Article  Google Scholar 

  • Camerer, C. (1989). Bubbles and fads in asset prices. Journal of Economic Surveys, 3(1), 3–42.

    Article  Google Scholar 

  • Capelle-Blancard, G., & Raymond, H. (2004). Empirical evidence in periodically collapsing stock price bubbles. Applied Economics Letters, 11, 61–69.

    Article  Google Scholar 

  • Case, K. G., & Shiller, R. J. (1990). Forecasting prices and excess returns in the housing market. AREUEA Journal, 18, 253–273.

    Google Scholar 

  • Chan, K. S. (1993). Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model. Annals of Statistics, 21(1), 520–533.

    Google Scholar 

  • Chan, S. H., Erickson, J., & Wang, K. (2003). Real estate investment trusts: Structure, performance, and investment opportunities. Oxford University Press.

  • Chan, S. H., Lering, W. K., & Wang, K. (1998). Institutional investment in REITs: Evidence and implications. Journal of Real Estate Research, 16, 357–374.

    Google Scholar 

  • Charemza, W. W., & Deadman, D. F. (1995). Speculative bubbles with stochastic explosive roots: The failure of unit root testing. Journal of Empirical Finance, 2, 153–163.

    Article  Google Scholar 

  • Chui, C. W. A., Titman, S., & Wei, K. C. J. (2003). Intra-industry momentum: The case of REITs. Journal of Financial Markets, 6, 363–387.

    Article  Google Scholar 

  • Clayton, J. (1997). Are housing price cycles driven by irrational expectations? Journal of Real Estate Finance and Economics, 14(3), 341–363.

    Article  Google Scholar 

  • Damodaran, A., John, K., & Liu, C. H. (1997). The determinants of organization form changes: Evidence and implications from real estate. Journal of Financial Economics, 45, 169–192.

    Article  Google Scholar 

  • Damodaran, A., & Liu, C. H. (1993). Insider trading as a signal of private information. Review of Financial Studies, 6, 79–120.

    Article  Google Scholar 

  • Dezbaksh, H., & Demirguc-Kunt, A. (1990). On the presence of speculative bubbles in stock prices. Journal of Financial and Quantitative Analysis, 25(1), 101–112.

    Article  Google Scholar 

  • Diba, B. T., & Grossman, H. I. (1984). Rational bubbles in the price of gold. NBER Working Paper No. 1300.

  • Diba, B. T., & Grossman, H. I. (1988a). Explosive rational bubbles in stock prices? American Economic Review, 78, 520–530.

    Google Scholar 

  • Diba, B. T., & Grossman, H. I. (1988b). The theory of rational bubbles in stock prices. Economic Journal, 98(392), 746–754.

    Article  Google Scholar 

  • Dickey, D., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431.

    Article  Google Scholar 

  • Enders, W., & Granger, C. W. J. (1998). Unit root tests and asymmetric adjustment with an example using the term structure of interest rates. Journal of Business and Economic Statistics, 16(3), 304–311.

    Article  Google Scholar 

  • Enders, W., & Siklos, P. (2001). Cointegration and threshold adjustment. Journal of Business and Economic Statistics, 19(2), 166–176.

    Article  Google Scholar 

  • Engle, R., & Granger, C. W. J. (1987). Co-integration and error-correction: Representation, estimation and testing. Econometrica, 55, 251–276.

    Article  Google Scholar 

  • Evans, G. W. (1991). Pitfalls in testing for explosive bubbles in asset prices. American Economic Review, 81, 922–930.

    Google Scholar 

  • Gentry, W. M., Kemsley, D., & Meyer, C. J. (2003). Dividend taxes and share prices: Evidence from real estate investment trusts. Journal of Finance, 58, 261–282.

    Article  Google Scholar 

  • Ghosh, C., Sirmans, C. F., & Nag, R. (2000). The pricing of seasoned equity offerings: Evidence from REITs. Real Estate Economics, 28(3), 363–384.

    Article  Google Scholar 

  • Glascock, J. L., Lu, C., & So, R. W. (2000). Further evidence on the integration of REIT, bond, and stock returns. Journal of Real Estate Finance and Economics, 20(2), 177–194.

    Article  Google Scholar 

  • Grenadier, S. (1995). The persistence of real estate cycles. Journal of Real Estate Finance and Economics, 10, 95–119.

    Article  Google Scholar 

  • Hakkio, C. S., & Rush, M. (1991). Cointegration: How short is the long-run? Journal of International Money and Finance, 10, 571–581.

    Article  Google Scholar 

  • Harman, Y. S., & Zuehlke, T. W. (2004). Duration dependence testing for speculative bubbles. Journal of Economics and Finance, 28(2), 147–154.

    Google Scholar 

  • Hendershott, P. H. (2000). Property asset bubbles: Evidence from the Sydney office market. Journal of Real Estate Finance and Economics, 20(1), 67–81.

    Article  Google Scholar 

  • Howe, J. S., & Shilling, J. D. (1988). Capital structure theory and REIT security offerings. Journal of Finance, 43(4), 983–993.

    Article  Google Scholar 

  • Im, K. S. (1996). A least squares approach to non-normal disturbances. Working Paper 9603, Department of Applied Economics, University of Cambridge.

  • Jirasakuldech, B., Campbell, R. D., & Knight, J. R. (2006). Are there rational speculative bubbles in REITs? Journal of Real Estate Finance and Economics, 32(2), 105–127.

    Google Scholar 

  • Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models. New York: Oxford University Press.

    Google Scholar 

  • Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52, 160–210.

    Google Scholar 

  • Kim, K. H., & Shuh, S. H. (1993). Speculation and price bubbles in the Korean and Japanese real estate markets. Journal of Real Estate Finance and Economics, 6, 73–87.

    Article  Google Scholar 

  • Kremers, J. J. M., Ericsson, N. L., & Dolado, J. (1992). The power of cointegration tests. Journal of Econometrics, 52, 389–402.

    Article  Google Scholar 

  • Li, Y., & Wang, K. (1995). The predictability of REIT returns and market segmentation. Journal of Real Estate Research, 10(4), 471–482.

    Google Scholar 

  • Li, D. D., & Yung, K. (2004). Short interest in real estate investment trusts. University of Maryland Eastern Short and Old Dominion University Working Paper.

  • Ling, D. C., & Naranjo, A. (1999). The integration of commercial real estate markets and stock markets. Real Estate Economics, 27(3), 483–515.

    Article  Google Scholar 

  • Ling, D. C., & Ryngaert, M. (1997). Valuation uncertainty, institutional involvement, and the underpricing of IPOs: The case of REITs. Journal of Financial Economics, 43(3), 433–456.

    Article  Google Scholar 

  • McCallum, B. T. (1983). On non-uniqueness in rational expectations models: An attempt at perspective. Journal of Monetary Economics, 11, 139–168.

    Article  Google Scholar 

  • McCallum, B. T. (1997). The role of the minimum state variables criterion in rational expectations models. International Journal of Tax and Finance, 6(4), 621–639.

    Article  Google Scholar 

  • Myer, F. C. N., & Webb, J. R. (1993). Return properties of equity REITs, common stocks, and commercial real estate: A comparison. Journal of Real Estate Research, 8(1), 87–106.

    Google Scholar 

  • Okunev, J., & Wilson, P. J. (1997). Using nonlinear tests to examine integration between real estate and stock markets. Real Estate Economics, 25(3), 487–503.

    Article  Google Scholar 

  • Okunev, J., Wilson, P. J., & Zurbruegg, R. (2000). The causal relationship between real estate and stock markets. Journal of Real Estate Finance and Economics, 21(3), 251–261.

    Article  Google Scholar 

  • Osterwald-Lenum, M. (1992). A note with quantiles of the asymptotic distribution of the maximum likelihood cointegration rank test statistics. Oxford Bulletin of Economics and Statistics, 54, 461–472.

    Google Scholar 

  • Payne, J. E., & Waters, G. A. (2005). REIT Markets: Periodically collapsing negative bubbles? Applied Financial Economics Letters, 1(2), 65–69.

    Google Scholar 

  • Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57(6), 1361–1401.

    Article  Google Scholar 

  • Peterson, J. D., & Hsieh, C. (1997). Do common risk factors in the returns on stocks and bonds explain returns on REITs? Real Estate Economics, 25(2), 321–345.

    Article  Google Scholar 

  • Phillips, P., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335–346.

    Article  Google Scholar 

  • Roche, M. J., & McQinn, K. (2001). Testing for speculation in agricultural land in Ireland. European Review of Agricultural Economics, 28(2), 95–115.

    Article  Google Scholar 

  • Sarno, L., & Taylor, M. P. (1999). Moral hazard, asset price bubbles, capital flows, and the East-Asian crisis: The first tests. Journal of International Money and Finance,18, 637–657.

    Article  Google Scholar 

  • Sarno, L., & Taylor, M. P. (2003). An empirical investigation of asset price bubbles in latin American emerging financial markets. Applied Financial Economics, 13, 635–643.

    Article  Google Scholar 

  • Taylor, M. P., & Peel, D. A. (1998). Periodically collapsing stock price bubbles: A robust test. Economics Letters, 61, 221–228.

    Article  Google Scholar 

  • Topol, R. (1991). Bubbles and volatility of stock prices: Effect of mimetic contagion. Economic Journal, 101(407), 786–800.

    Article  Google Scholar 

  • Wang, K., Erickson, J., Gau, G., & Chan, S. H. (1995). Market microstructure and real estate returns. Real Estate Economics, 23(1), 85–100.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Illinois State University, Normal, IL, 61790-4200, USA

    James E. Payne & George A. Waters

Authors
  1. James E. Payne
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. George A. Waters
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to James E. Payne.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Payne, J.E., Waters, G.A. Have Equity REITs Experienced Periodically Collapsing Bubbles?. J Real Estate Finan Econ 34, 207–224 (2007). https://doi.org/10.1007/s11146-007-9007-0

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11146-007-9007-0

Keywords

Search

Navigation