Information diffusion in the U.S. real estate investment trust market

This study examines the information diffusion process in the U.S. Real Estate Investment Trust (REIT) market with a focus on the impacts of changing market environments, information supply, and information demand on the lead-lag effect. The results suggest that a significant lead-lag relationship exists between the lagged returns of big REITs and the current returns of small REITs. This relationship has slightly decreased along with policy and environment changes that occurred in the U.S. REIT market during the study period from 1986 to 2012, while still remaining significant in the most recent REIT market. The process of information diffusion is becoming unstable in recent years and the reverse lead-lag effect from small REITs to big REITs is observed especially when REIT market liquidity and return volatility are high. The lead-lag effect among REITs is driven largely by slow adjustment to negative information, which is magnified by a lack of information supply, especially as demand for such information increases. Finally, information flow from REITs with more media coverage to those with less media coverage becomes even more sluggish than the information flow from big REITs to small REITs

Segmented markets, differential information, and asset return dynamics

In a rational expectations framework under the assumption that the stock market is segmented because of legal restrictions, it is demonstrated that the returns of large firm stocks are predictors of small firm stock returns. Empirical tests supporting this prediction are also presented

Of shepherds, sheep, and the cross-autocorrelations in equity returns

We present an economic mechanism and supportive empirical evidence for the transmission of information between equity securities first documented by Lo and MacKinlay (1990). It is argued that the past returns on stocks held by informed institutional traders will be positively correlated with the contemporaneous returns on stocks held by noninstitutional uninformed traders. Evidence consistent with this hypothesis is then presented. We document that the returns on the portfolio of stocks with the highest level of institutional ownership lead the returns of portfolios of stocks with lower levels of institutional ownership. This effect persists even after firm size is controlled for and is apparent at longer lags than the size-related lag effect documented in Lo and MacKinlay (1990)

Potential Drawbacks of Price-based Accounting in the Insurance Sector

This paper analyzes the relevance of cost-based accounting in financial markets, focusing on the drawbacks associated with a move from cost- to price-based accounting. While the benefits of such a move are well known, much less attention has been given to the potential hidden costs. We explore such hidden costs looking at both companies and investors. From the point of view of insurance companies, we consider issues like the potential increase in earnings volatility and changes in the cost of capital. From the point of view of the final investor, we consider liquidity and expected returns, stressing the role of behavioral models. Our conclusion is that cost-based accounting is a useful addition to financial markets. It may stabilize short-run financial results and may improve the situation of investors with short horizons and loss aversion. It is certainly true that cost-based financial products are not fully transparent and leave to the asset manager large discretion in the determination of short-run returns. However, we believe that cancellation of cost-based financial products is not the right reaction to these drawbacks. Rather, we believe that regulation and monitoring is the best answer. The Geneva Papers (2007) 32, 163–177. doi:10.1057/palgrave.gpp.2510123