REIT markets and rational speculative bubbles: an empirical investigation

Abstract

This study uses the momentum threshold autoregressive (MTAR) model and the residuals-augmented Dickey–Fuller (RADF) approach to test for the presence of Evans’ (1991 Evans, GW. 1991. Pitfalls in testing for explosive bubbles in asset prices. American Economic Review, 81: 922–30. [Web of Science ®] , [Google Scholar]) periodically collapsing bubbles in four real estate investment trusts (REIT) classifications. The RADF test shows evidence of bubbles, but the results of the MTAR test are mixed. The MTAR test shows asymmetric adjustment for each REIT market with the exception of hybrid REITs, but only mortgage REITs show evidence of bubbles, which turn out to be negative meaning the price falls substantially below the level warranted by fundamentals.

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