Testing for Periodically Collapsing Rational Speculative Bubbles in US REITs

21 Pages Posted: 1 Aug 2010

See all articles by Keith P. Anderson

Keith P. Anderson

The York Management School

Chris Brooks

University of Bristol - School of Economics, Finance and Management

Sotiris Tsolacos

University of Reading - Centre for Spatial and Real Estate Economics (CSpREE)

Date Written: September 29, 2009

Abstract

This paper is the first to utilize a direct test for periodic, partially collapsing speculative bubbles in US REIT prices. A long history of data is employed for the All, Mortgage and Equity REIT categories. This approach is more powerful than existing tests and is based on the formulation of a switching model that has a surviving regime where the bubble continues to grow and a collapsing regime where the bubble implodes. There is some evidence for the presence of speculative bubbles, most notably in the Mortgage REITs series. There is also visual evidence of a negative bubble in all three series in the early 1970s and of a positive bubble after 2000 which subsequently burst. We are able to compute the time-varying probabilities of being in the surviving and collapsing regimes, and through this to estimate a probability that the bubble will burst during the following period. We show how this information may be used in developing a signal to inform investors’ decisions on timing an exit from the market, thereby shielding their portfolios from the effects of periodically bursting bubbles or indeed taking advantage of such bubbles.

Keywords: REITs, periodic partially collapsing speculative bubbles, direct bubble tests, probability of collapse, trading signals

JEL Classification: G11, G12, G17

Suggested Citation

Anderson, Keith P. and Brooks, Chris and Tsolacos, Sotiris, Testing for Periodically Collapsing Rational Speculative Bubbles in US REITs (September 29, 2009). Available at SSRN: https://ssrn.com/abstract=1480350 or http://dx.doi.org/10.2139/ssrn.1480350

Keith P. Anderson

The York Management School ( email )

York YO10 5DD
United Kingdom

Chris Brooks (Contact Author)

University of Bristol - School of Economics, Finance and Management ( email )

School of Accounting and Finance
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Sotiris Tsolacos

University of Reading - Centre for Spatial and Real Estate Economics (CSpREE) ( email )

Department of Economics Whiteknights P.O. Box 219
Reading, RG6 6AH
United Kingdom
44-0118-931-823 (Phone)
44-118-931-6533 (Fax)

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