The short interest market for publicly traded real estate.

This paper evaluates the relation between publicly traded real estate returns and short interest levels. The sample is comprised of NYSE-traded Real Estate Investment Trusts (REITs) covering the period from 1990 through 2005. The data and results offer some surprising findings. First, it may not be widely known that the level of short interest has grown dramatically over the sample period. In fact, in recent years the level of REIT short interest – as measured by median relative short interest - has eclipsed the short interest level of firms in the broader market. Second, while conventional wisdom associates short interest with bearish sentiment, even highly shorted REIT in the sample have positive returns. However, and far more interesting, the spread between low and high short interest portfolios is significantly positive. This finding holds with persistence and across robust risk adjustment schemes. The results may be of particular interest to investors given the recent surge in hedge fund-related real estate investment.