Real Estate Investment Trusts and Calendar Anomalies

Article excerpt

Abstract. There have been numerous studies in the finance literature on the existence of calendar anomalies in common stocks and a few studies of individual anomalies in the markets for real estate investment trusts. This study provides a comprehensive examination of the existence of four calendar anomalies for REITs and common stocks from 1986 through 1993. The results show the existence of the January effect, the turn-of-the-month effect, the day-of-the-week effect, and the pre-holiday effect in REITs and an equally weighted index of stocks. REIT returns tend to be higher in January, on Friday, on turn-ofthe-month trading days, and on pre-holiday trading days.


The finance literature provides evidence of the existence of several calendar anomalies for common stocks. Four calendar anomalies have been documented: the January effect, the day-of-the-week effect, the turn-of-the-month effect, and the pre-holiday effect. The January effect, where returns are higher in January than the other months, has been documented by Rozeff and Kinney (1976), Keim (1983, 1985), and Roll (1983). Cross (1973), French (1980), Gibbons and Hess (1981), and Harris (1986) published evidence of the existence of the day-of-the-week effect, where returns for stocks are lower on Monday than the other days. The turn-of-the-month anomaly, which implies that returns are greater on the turn-of-the-month trading days, has been examined by Ariel (1987) and Ogden (1990). The pre-holiday effect (returns are higher on trading days before holidays than the other days of the year) has been documented by Ariel (1990). In general, studies have shown that abnormal returns can be earned at different times of the week or year and on stocks of small capitalization companies, contrary to the implication of the Efficient Markets Hypothesis (EMH).

Researchers in real estate have examined the returns on the shares of real estate investment trusts (REITs) for evidence of some of these anomalies. Colwell and Park (1990) examined mortgage and equity REITs for the existence of the January and size effects. They found that REIT returns tend to be higher in January for small REITs, with returns diminishing for larger REITs. They also found some unexpected results: reverse size effects for mortgage REITs (in certain months) and that the returns for mortgage REITs tend to be lower than equity REITs in months other than January. Liu and Mei (1992) also found evidence of the January effect on REITs. McIntosh, Liang and Tompkins (1991) examined the size effect for REITs. Their study provides support for a small firm effect for the period 1974 to 1988. Other real estate studies have suggested that REIT shares perform similar to other common stocks (Smith and Shulman, 1976; Zerbst and Cambon, 1983).

Most REIT research on anomalies has concentrated on the size and turn-of-the-year effects in REIT returns. What is lacking is a more extensive examination of the calendar anomalies as they might apply to REITs. In recent years, studies of real estate investment trusts have questioned whether REIT performance is more closely related to stock market performance or to the impact of the underlying real estate assets (Giliberto, 1990; Ibbotson and Siegal, 1984; Titman and Warga, 1986; Chan, Hendershott and Sanders, 1990). In addition, Ambrose, Ancel and Griffiths (1992) examined the existence of segmentation between capital and real estate markets using returns for REITs. They found that both the stock market and REIT portfolios exhibit random walk tendencies. Overall, the literature provides support for both the existence of efficiency in stock markets (including real estate investment trusts) and for the existence of size and turn-ofthe-year anomalies for real estate investment trusts. Previous studies in REITs have examined the possible existence of individual anomalies, rather than using a comprehensive analysis of seasonality in the market for REIT shares. …