Which Sentiment Indicators Matter? An Analysis of the European Commercial Real Estate Market

Property markets exhibit several classic market inefficiencies, which can lead to irrational behaviour and a better understanding of connections between yield modeling and the role of sentiment is of immense interest to property funds, pension funds, banks, insurance companies
and other participants. While past studies have examined the role of sentiment in market performance, the conclusions have remained mixed. This paper compares established models against two new innovative methods, paying more attention towards the expectations of market
participants to explain yield adjustments and swings in property values. Forecast evaluations reveal that models incorporating property-specific and google trend sentiment outperform the base model. The European market offers an interesting testing ground for our research questions
as the interest of investors and banks in abrupt movements in yields and pricing and the role of market sentiment has grown in Europe post global financial crisis due to high level of nonperforming loans.