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Linear and Nonlinear Predictablity of International Securitized Real Estate Returns: A Reality Check

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  • Juan Cabrera
  • Tao Wang
  • Jian Yang

Abstract

This paper examines the short-horizon return predictability of the ten largest international securitized real estate markets, paying special attention to possible nonlinearity-in-mean as well as nonlinearity-in-variance predictability. Although international securitized real estate returns are generally not predictable based on commonly-used statistical criteria, there is much evidence for the predictability based on economic criteria (i.e., direction of price changes and trading rule profitability), which is more often due to nonlinearity-in-mean. The forecast combinations for various models appear to improve the forecasting performance, while the allowance of data-snooping bias using White's reality check substantially mitigates spurious out-of-sample forecasting performance and weakens otherwise overwhelmingly strong predictability. Overall, there is robust evidence for the predictability in many international securitized real estate markets.

Suggested Citation

  • Juan Cabrera & Tao Wang & Jian Yang, 2011. "Linear and Nonlinear Predictablity of International Securitized Real Estate Returns: A Reality Check," Journal of Real Estate Research, Taylor & Francis Journals, vol. 33(4), pages 565-594, January.
    • Handle: RePEc:taf:rjerxx:v:33:y:2011:i:4:p:565-594
    DOI: 10.1080/10835547.2011.12091317
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