Industry Concentration and US REIT Returns

The real estate investment trusts (REITs) industry has been omitted from industry concentration studies because REITs are unique, regulated companies. We fill this research gap and investigate the relationship between REIT industry concentration and its returns. First, we demonstrate that changes in concentration drive future REIT returns, and this causality is significant and unilateral. Second, we find that changes in concentration can significantly and negatively predict future REIT returns. Third, we reveal that this predictive power is asymmetric, with stronger power on equity-REIT than mortgage-REIT returns. We contend that greater REIT industry concentration implies less risk leading to lower future returns and vice versa.