The Role of Correlated Trading in Setting REIT Prices

Kevin C. H. Chiang and Ming-Long Lee

Online First™, 3 March 2009

Abstract

This study investigates the role of correlated trading by individuals in setting equity real estate investment trust (REIT) prices. Consistent with existing literature, this study finds that there is a common element in correlated trades that drives both traditional closed-end fund prices and REIT prices. Perhaps more important, we find evidence suggesting that (1) the effects of correlated trading on REIT prices are stronger for those REITs that are hypothesized to be preferred by individual investors, and (2) this linkage is stronger when the REIT market is hot and exuberant; i.e., when the average share turnover in the REIT market is high.Keywords  REITs – Correlated trading – Co-movement – Investor sentiment – Turnover

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