Investor overconfidence and trading activity in the Asia Pacific REIT markets

• Published in: Journal of risk and financial management 2020-10, Vol.13 (10), p.1-21
• Main Authors: Bao, Helen, Li, Steven Haotong
• Format: Article
• Language: English
• Subjects: Behavior; behavioral finance; Bull markets; Efficient markets; Hypotheses; investment decision; Investments; judgmental bias; real estate; REITs; Securities markets; Short sales; Stock exchanges; Transparency
• ISSN: 1911-8074; 1911-8066; 1911-8074
• DOI: 10.3390/jrfm13100232

Overconfidence is one of the most robust behavioral anomalies in financial markets. By attributing investment gains to their ability, investors become overconfident and trade aggressively in subsequent periods. Evidence from stock markets shows that overconfidence leads to excessive trading and, subsequently, inferior investment performance. However, studies on overconfidence effect are lacking in the real estate sector, which is particularly true for Asia Pacific real estate investment trust (REIT) markets. Thus, this study examines the overconfidence effect in six Asia Pacific REIT markets, namely, Australia, Hong Kong, Japan, Singapore, South Korea, and Taiwan. The study finds that the overconfidence effect is more conspicuous during market boom periods or in inefficient market conditions. In addition, simulation analysis demonstrates that overconfidence could lead to rather large volumes of excessive trading activities in certain markets. Findings are robust across the alternative measures of control variables. Moreover, the policy implications of the research are also discussed.