The boom and the lean times in global REITs: the 2000‐2008 period

Abstract

PurposeThe purpose of this paper is to consider two global real estate periods (2000‐2006 and 2007‐2008) that will probably be recorded in history as the most significant periods in terms of a surge and then an eventual downturn in the real estate prices and returns. The paper aims to offer investment strategies in the real estate sector and pinpoint the optimum momentum strategies that provide the maximum returns in the real estate investment trusts (REITs) markets of seven countries.Design/methodology/approachWithin an iterative framework, a two‐step procedure was employed. The first step drew upon an established momentum approach. The second step, however, departed from it and employed an evolutionary (genetic) algorithm to optimize the investment strategies that could be pursued.FindingsThe findings suggest that momentum effects have been present during the 2000‐2008 periods. However, in contrast with prior studies, momentum portfolio returns are statistically insignificant during the boom years, but are highly significant during the downturn periods. These findings are attributed to the heterogeneous returns during these periods.Practical implicationsProfitable REITs momentum investment is not uniform across the countries considered. Taking long positions in the winners and short positions in the losers during the boom periods in the real estate market may not necessarily be an optimum strategy. Since the profitability of the investment strategy during the downturn is driven by short positions, the practical implementation of such strategy will be limited if short sales constraints are imposed.Originality/valueThe paper employs a unique and novel approach for the first time in the field of real estate investment. It introduces genetic algorithm into the momentum literature. This approach pinpoints the optimum profitability of the momentum/persistence strategies that could be pursued.