Forecasting Share Redemption Suspensions and Net Asset Value Decreases of Open-End Real Estate Funds: The Role of Investment Ratings

Abstract In this paper, models are built and evaluated to forecast the share redemption suspensions and net asset value decreases of German open-end real estate funds. These models emphasize the potential role of qualitative investment ratings in the above two aspects. The results reveal that better ratings correlate with a lower likelihood of future redemption suspensions and net asset value decreases. When ratings are included in the forecasting models, the out-of-sample forecast quality is enhanced. By extending the analysis to latent redemption suspensions from July 2016 to June 2024, when real redemption suspensions were unobservable due to unusually favorable interest rate momentum and a regulatory regime shift toward a minimum holding period, this paper makes an important practical contribution by providing estimates of redemption suspension probabilities.