The Value Added from Investment Managers:An Examination of Funds of REITs

Abstract

This paper empirically analyzes REIT mutual funds. Weshow that, contrary to mostmutual fund studies, theaverage and median alphas (net of expenses) arepositive. We also findthat time-varying positivealphas are much more likely to occur when the realasset market is performing poorly, suggesting thatmanagers add more value in down markets than in upmarkets. We examine the cross-sectional determinantsof both standard alphas and the average oftime-varing alphas and find that both increase withassets and turnover. Cross-sectinally, we find thatactively managed funds have higher alphas thanpassively managed funds.