On The Comovement of REIT Prices

This study examines the comovement of equity real estate investment trust (REIT) prices in both the vintage (1980–1991) and the new (1992–2004) REIT eras. The results indicate that the comovement of equity REIT prices within the same property type has strengthened during the new REIT era. The results also indicate that, all else being equal, a high institutional participation, a low insider ownership, and a large market capitalization are associated with a high within-property-type price synchronicity. The evidence is consistent with two notions: (1) that increasing participation by institutional investors in the new REIT era facilitates the pricing of property-type common information on firm-level prices, and (2) that REITs’ information openness to institutional investing plays a role in this strengthened pricing relationship.

Substitutability between Equity REITs and Mortgage REITs

This study extends Seck’s (1996) approach to investigate the degree of substitutability between equity real estate investment trusts (EREITs) and mortgage real estate investment trusts (MREITs). The variance ratio test and the variance decomposition of forecast errors yield results indicating the existence of informational commonality between EREITs and MREITs. The findings indicate that the two types of REITs are substitutable. A direct implication is that investors who believe they have superior forecasting ability will be indifferent to invest in either type of REIT. Another implication is that REITs can be treated as a single asset class in constructing a diversified multi-asset portfolio.

Chasing housing prices: Working paper series--06-08

If a person or organization is planning to buy real estate in the future but is unable or unwilling to buy it now, how can they best "hedge" this purchase? In what class of asset should they invest their money until they are ready to purchase the real estate? This paper uses Monte Carlo simulation and bootstrap techniques to help answer these questions. We find that the best "purchase early" hedge for both residential and commercial real estate is small value stocks. Small value stocks would be the most likely to provide returns at least as good as real estate and they would be least likely to suffer losses relative to real estate. The effectiveness of the hedge increases the longer the time horizon of the investor. Large value stocks and equity REITs are also quite good but not as good as small value stocks. Other asset classes are not nearly as effective. The least effective asset class is T-Bills

Chasing Housing Prices?

If a person or organization is planning to buy real estate in the future but is unable or unwilling to buy it now, how can they best “hedge” this purchase? In what class of asset should they invest their money until they are ready to purchase the real estate? This paper uses Monte Carlo simulation and bootstrap techniques to investigate the effectiveness of using traditional asset classes in managing the long-term risks associated with the future purchase of real estate. We find that the best “purchase early” hedge for both residential and commercial real estate is small value stocks. Small value stocks would be the most likely to provide returns at least as good as real estate and they would be least likely to suffer losses relative to real estate. The effectiveness of the hedge increases the longer the time horizon of the investor. Large value stocks and equity REIT’s are also quite good but not as good as small value stocks. Other asset classes are not nearly as effective. The least effective asset class is T-Bills

Long-Run Underperformance And The Offering Price Clustering Phenomenon

The study proposes a new informational role for the offering price of an equity IPO.  Offering prices are quoted either in whole prices (e.g., $2,$11, $19, etc) or fractional prices (e.g.,$2.35, $11.15,$15.75, etc).  Using Jay R. Ritter’s sample of 1,526 IPOs issued during the period 1975 to 1984, the study examines the relation between the presence of whole price clusters and long-run underperformance.  The results indicate that fractional offering prices are associated with better long-run performance. &nbsp

Investor Sentiment And Close-End Country Funds?

An innovative method to estimate the duration of investor sentiment is applied to closed-end country fund returns and it finds that U.S. investor sentiment has a short life.  The effects of sentiment on closed-end country fund returns are largely consistent with existing literature however, it is only apparent in daily time-series regressions.  Sentiment rapidly fades at a weekly frequency and virtually disappears using monthly return observations.  These results suggest that the kind of investor sentiment for country fund prices does not have a persistent component