The relative significance of behavioural finance factors in the investment decisions of Australasian REITs

Terence Y. M. Lam*, Taylah O. Hasell, Malvern L.D.B. Tipping

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Purpose – Referring to ‘behavioural finance’ and ‘normative model’ theories, this study explores relative significance of behavioural heuristic biases in the investment decisions of real estate investment trusts (REITs) when compared with the conventional normative decision factors, with an ultimate aim to identify the significant behavioural factors which should be avoided to ensure rational asset acquisitions and market efficiency.

Design/method/approach – A triangulation approach was adopted. Qualitative multiple-case studies were conducted, with four cases selected from Australian and New Zealand REITs across the industry, to identify what normative and behavioural finance factors are involved in investment decisions. This formed the basis for the subsequent expert review survey to explore how significant the behavioural factors were manifested in the judgement when compared with the normative factors.

Findings – Three out of four theoretical behavioural factors manifested themselves in the investment decisions: investor sentiment, anchoring factors, and overconfidence. The overall impact of these three behavioural factors was that they were as significant as normative factors in investment decisions. Heuristic availability of information was found to have no significant effect on experienced REIT fund managers.

Research limitations/implications – The findings were based on four multiple cases and an expert review survey of six frontline fund managers, which form a baseline upon which further research can be conducted to widen the scope of research to cover all REITs in Australasia so that the results can become more robust to benefit the entire market in the region.

Practical implications – As behavioural factors are significant in the decision-making process, REIT fund managers should raise awareness to avoid the significant behavioural factors identified, in particular, investor sentiment which was found to be the most significant one.

Originality/value – This study confirms the relative significance of behavioural factors in property investment decisions within the context of Australasian REITs, and alerts fund managers to the ways they should follow to ensure rational investments and market efficiency. It also extends the scale of existing studies to cover not only Australia but also New Zealand for the benefit of the entire Australasian market.
Original languageEnglish
Number of pages16
JournalProperty Management
Early online date30 Oct 2023
Publication statusE-pub ahead of print - 30 Oct 2023

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