The predictability of equity REIT returns: Time variation and economic significance

This article presents evidence on predictability of excess returns for equi ty REITs relative to the aggregate stock market, small-capitalization stock s, and T-bills using best-fit models from prior time periods. We find that excess equity REIT returns are far less predictable out-of-sample than in-s ample. This inability to forecast out-of-sample is particularly true in the 1990s. Nevertheless, in the absence of transaction costs, active-trading s trategies based on out-of-sample predictions modestly outperform REIT buy-a nd-hold strategies. However, when transaction costs are introduced, profits from these active-trading strategies largely disappear.