Consumer Sentiment, Investor Optimism, and REIT Returns

Abstract

This study provides initial empirical evidence on the usefulness of consumer sentiment and investor optimism indices in explaining real estate investment trust (REIT) price movements. We find evidence of uni-directional causality from REIT returns to the change in Michigan Consumer Sentiment Index for the period 1978 to 2008. We find a negative and significant relationship between the level of Michigan Consumer Sentiment Index in one month and the FTSE/NAREIT US All REIT returns in the next one, six, and twelve months. However, the relationship is significant for the 1978-1992 period but not for the 1992-2008 period. Additionally, we find a positive and significant relationship between Yale One-Year Confidence Index of Individuals and REIT returns and no significant relationship was found between REIT returns and investor sentiment as measured by the UBS/Gallup Investor Optimism Index. Our study represents the first examination of the relationship between survey-based sentiment measures and REIT returns. The results of this study are useful to investors who pay close attention to survey-based sentiment indicators. Results should also be of interest for academicians in the area of behavioral finance and asset pricing.

Keywords: REIT returns, consumer sentiment, investor optimism, investor psychology, and behavioral finance