A Monthly Momentum Strategy for U.S. REITs
Summary
The document describes a cross-sectional momentum strategy for U.S. real estate investment trusts. Each month, it ranks listed REITs by their returns over the prior 11 months, leaving out the most recent month, and divides them into equal-weighted groups. The strategy holds the top-performing third for three months, adding a new monthly cohort so that one-third of the portfolio is refreshed each month. The proposed explanation is that investors may react gradually to information, allowing recent relative winners to keep outperforming.
The cited research reports momentum in REITs and notes that a REIT-specific momentum factor can help explain mutual fund performance. Other studies give mixed qualifications: momentum returns may relate to volatility and earnings drift, while one study finds the effect fades in later sample periods. The strategy is long-only and remains exposed to broad equity market risk, so it is not presented as a crisis hedge. Results may depend on the sample period, portfolio formation and holding choices, and implementation costs; the document supplies no complete performance series for the specific rule.
Key ideas
- Rank U.S. REITs monthly using returns from the prior 11 months, excluding the latest month.
- Form equal-weighted terciles and hold the top-performing tercile for three months.
- Refresh one-third of the portfolio each month to create overlapping holding cohorts.
- Investor underreaction and herding are proposed explanations for continued relative performance.
- Research cited in the document suggests REIT momentum may weaken in later periods.
- The long-only strategy retains substantial equity market exposure and is not a bear-market hedge.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.