Abstract
This study extends Seck's (1996) approach to investigate the degree of substitutability between equity real estate investment trusts (EREITs) and mortgage real estate investment trusts (MREITs). The variance ratio test and the variance decomposition of forecast errors yield results indicating the existence of informational commonality between EREITs and MREITs. The findings indicate that the two types of REITs are substitutable. A direct implication is that investors who believe they have superior forecasting ability will be indifferent to invest in either type of REIT. Another implication is that REITs can be treated as a single asset class in constructing a diversified multi-asset portfolio.
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