Herding behavior in REITs: Novel tests and the role of financial crisis

This study examines the existence of herding effects in the US REIT market, constructing a survivorship-bias-free dataset of daily returns during the period January 2004–December 2011. Apart from documenting the existence of herding behavior by conducting comprehensive tests, we also explore new channels through which this may be intensified. Deterioration of investors' sentiment and adverse macro-shocks to REIT funding conditions are found to be significantly related to the emergence of herding behavior. Contrary to common belief, however, the recent financial crisis did not seem to contribute to this phenomenon. Finally, asymmetric herding effects are documented during the days of negative market returns.