Categorizing sentiment and its impact on REIT returns

Abstract

Purpose

The purpose of this paper is to reexamine the impact of investor sentiment on real estate investment trust (REIT) returns using direct, survey-based measures of sentiment to categorize sentiment from institutional and individual investors.

Design/methodology/approach

The authors provide a framework in which sentiment is classified into individual and institutional investor sentiment under the assumption that investors, depending on sophistication, react differently to the same set of information and will influence REIT prices differently. The authors employ a methodology that uses panel regression analyses and divides the sample of REITs into size and performance portfolios.

Findings

The regression results suggest that institutional investor sentiment is positively and significantly related to REIT returns contemporaneously for multiple sample specifications. These results are consistent with high levels of institutional ownership in REITs. Results also suggest that individual investor sentiment only influences small capitalization and low-α portfolios.

Originality/value

The findings provide more evidence on the influence of investor sentiment on security pricing even for highly regulated sectors such as the REIT industry. Investors may use changes in sentiment as signals for portfolio rebalancing and capital allocations.

Citation

Huerta, D., Jackson, D.O. and Ngo, T. (2015), "Categorizing sentiment and its impact on REIT returns", Managerial Finance, Vol. 41 No. 9, pp. 958-973. https://doi.org/10.1108/MF-06-2014-0164