Anomalies in U.S. REIT Returns: Evidence for and against the Q-theory

Among the well-known asset pricing anomalies in U.S. common stocks (i.e. size, value, momentum, investment, and profitability), only investment and momentum premiums are significant in the REIT industry. According to the q-theory, the investment effect turns significant because REIT firms tend to expand (extract) their assets when discount rates are low (high), thereby investment has statistical power to explain for REIT returns. Even though the insignificant effect of probability in REITs challenges the explanation of the q-theory, we provide evidence that profitability, in fact, controls the momentum. Our results indicate market inefficiency as investors who have a better understanding of the significant investment and momentum premiums perform better than others.