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Are There Rational Bubbles in REITs? New Evidence from a Complex Systems Approach

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  • Maximilian Brauers
  • Matthias Thomas
  • Joachim Zietz

Abstract

This study applies a complex systems approach to test for the presence of rational bubbles in the Equity REITs market. The applied model is based on theoretical implications of the evolution of prices under rational bubble regimes. The advantage of the approach is twofold. The model is able to detect rational bubbles while they rise and to predict the most likely time of their collapse. We apply the model to daily price data on U.S. Equity REITs from 1989 to 2011. Our findings suggest the existence of a bubble for the period of 2003 to 2007. Tests for sub-markets reveal that the bubble developed in the Residential REITs market, but not in the Office REITs market. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Maximilian Brauers & Matthias Thomas & Joachim Zietz, 2014. "Are There Rational Bubbles in REITs? New Evidence from a Complex Systems Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 49(2), pages 165-184, August.
    • Handle: RePEc:kap:jrefec:v:49:y:2014:i:2:p:165-184
    DOI: 10.1007/s11146-013-9420-5
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    Cited by:

    1. Wen-Yuan Lin & I-Chun Tsai, 2016. "Asymmetric Fluctuating Behavior of China's Housing Prices," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(2), pages 107-126, March.
    2. Kristoffer Pons Bertelsen, 2019. "Comparing Tests for Identification of Bubbles," CREATES Research Papers 2019-16, Department of Economics and Business Economics, Aarhus University.
    3. Huerta-Sanchez, Daniel & Jafarinejad, Mohammad & Kim, Dongshin & Soyeh, Kenneth W., 2020. "Disentangling bubbles in equity REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 357-367.
    4. Tsai, I-Chun & Lin, Che-Chun, 2022. "A re-examination of housing bubbles: Evidence from European countries," Economic Systems, Elsevier, vol. 46(2).
    5. Kwangwon Ahn & Hanwool Jang & Jinu Kim & Inug Ryu, 2024. "COVID-19 and REITs Crash: Predictability and Market Conditions," Computational Economics, Springer;Society for Computational Economics, vol. 63(3), pages 1159-1172, March.

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    More about this item

    Keywords

    REITs; Rational expectation bubbles; Complex systems; LPPL model; C53; G17;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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