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The Real Estate Investment Trust (REIT) market has become an increasingly important vehicle for alternative investment for equity investors. While existing research examining the cross-section of REIT returns usually employs standard risk factors in the in-sample models, it can only show the ex-post performance of REIT portfolios. The goal of our paper is to examine the ex-ante performance of REIT portfolios (i.e., the ability of investors to earn abnormal returns in real time). We employ the out-of-sample methodology of Cooper, Gutierrez, and Marcum (2005), and show that ex-ante performance of REIT portfolios is rather weak. For about half of our 19-year sample over the period of 1999 to 2017, the portfolio performances of REITs chosen ex-ante do not beat the performances of the FTSE-NAREIT or the CRSP Equal-Weighted index. After adjusting for transaction costs, the REIT portfolios significantly further underperform their benchmarks. Overall, our findings suggest that the market is relatively efficient in the REIT sector, and it is difficult for investors to devise trading strategies that improve the ex-ante performance of REIT portfolios, based on standard risk factors.

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