Information Diffusion in the U.S. Real Estate Investment Trust Market

Article

Abstract

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.

Keywords

Information diffusion Lead-lag effect REIT Media coverage Information demand 

References

  1. Badrinath, S. G., Kale, J. R., & Noe, T. H. (1995). Of shepherds, sheep, and the cross-autocorrelations in equity returns. Review of Financial Studies, 8(2), 401–430.CrossRefGoogle Scholar
  2. Barkham, R., & Geltner, D. (1995). Price discovery in American and British property markets. Real Estate Economics, 23(1), 21–44.CrossRefGoogle Scholar
  3. Bekaert, G., Harvey, C. R., & Ng, A. (2005). Market integration and contagion. The Journal of Business, 78(1), 39–69.CrossRefGoogle Scholar
  4. Blau, B. M., Hill, M. D., & Wang, H. (2010). REIT short sales and return predictability. Journal of Real Estate Finance and Economics, 42(4), 481–503.CrossRefGoogle Scholar
  5. Boudoukh, J., Richardson, M. P., & Whitelaw, R. (1994). A tale of three schools: insights on autocorrelations of short-horizon stock returns. Review of Financial Studies, 7(3), 539–573.CrossRefGoogle Scholar
  6. Brennan, M. J., Jegadeesh, N., & Swaminathan, B. (1993). Investment analysis and the adjustment of stock prices to common information. Review of Financial Studies, 6(4), 799–824.CrossRefGoogle Scholar
  7. Caramazza, F., Ricci, L., & Salgado, R. (2000). Trade and financial contagion in currency crises. IMF Working paper.Google Scholar
  8. Chen, H., Downs, D. H., & Patterson, G. A. (2012). The information content of REIT short interest: investment focus and heterogeneous beliefs. Real Estate Economics, 40(2), 249–283.CrossRefGoogle Scholar
  9. Chiang, K. C. H. (2009). Discovering REIT price discovery: a new data setting. The Journal of Real Estate Finance and Economics, 39(1), 74–91.CrossRefGoogle Scholar
  10. Chiang, K. C. H. (2010). On the co-movement of REIT prices. Journal of Real Estate Research, 32(2), 187–200.Google Scholar
  11. Chordia, T., & Swaminathan, B. (2000). Trading volume and cross-autocorrelations in stock returns. The Journal of Fiannce, 55(20), 913--935.Google Scholar
  12. Chordia, T., & Swaminathan, B. (2010). Trading volume and cross-autocorrelations in stock returns. The Journal of Finance, 55(2), 913–935.CrossRefGoogle Scholar
  13. Chui, A. C. W., Titman, S., & Wei, K. C. J. (2003). Intra-industry momentum: the case of REITs. Journal of Financial Markets, 6(3), 363–387.CrossRefGoogle Scholar
  14. Chung, R., Fung, S., Shilling, J. D., & Simmons-Mosley, T. X. (2011). What determines stock price synchronicity in REITs? The Journal of Real Estate Finance and Economics, 43(1), 73–98.CrossRefGoogle Scholar
  15. Cohen, L., & Frazzini, A. (2008). Economic links and predictable returns. The Journal of Finance, 63(4), 1977–2011.CrossRefGoogle Scholar
  16. Conrad, J., & Kaul, G. (1988). Time-variation in expected returns. Journal of Business, 61(4), 409–425.CrossRefGoogle Scholar
  17. Diamond, D. W., & Verracchia, R. E. (1987). Constraints on short-selling and asset price adjustment to private information. Journal of Financial Economics, 18(2), 277--311.Google Scholar
  18. Giliberto, M. S. (1990). Equity real estate investment trusts and real estate returns. Journal of Real Estate Research, 5(2), 259–263.Google Scholar
  19. Glick, R., & Rose, A. (1999). Contagion and trade: why are currency crises regional? Journal of International Money and Finance, 18(4), 603–617.CrossRefGoogle Scholar
  20. Gyourko, J., & Keim, D. B. (1992). What does the stock market tell us about real estate returns? Real Estate Economics, 20(3), 457–485.CrossRefGoogle Scholar
  21. Hameed, A. (1997). Time-varying factors and cross-autocorrelations in short-horizon stock returns. Journal of Financial Research, 20(4), 435–458.CrossRefGoogle Scholar
  22. Hasler, M. (2012). Fluctuating attention to news and financial contagion. Working paper.Google Scholar
  23. Higgins, E. J., Ott, R. L., & Van Ness, R. A. (2006). The information content of the 1999 announcement of funds from operations changes for real estate investment trusts. Journal of Real Estate Research, 28(3), 241–256.Google Scholar
  24. Hong, H., & Stein, J. C. (1999). A unified theory of underreaction, momentum trading, and overreaction in asset markets. The Journal of Finance, 54(6), 2143–2184.CrossRefGoogle Scholar
  25. Hou, K. (2007). Industry information diffusion and the lead-lag effect in stock returns. Review of Financial Studies, 20(4), 1113–1138.CrossRefGoogle Scholar
  26. Hou, K., & Moskowitz, T. J. (2005). Market frictions, price delay, and the cross-section of expected returns. Review of Financial Studies, 18(3), 981–1020.CrossRefGoogle Scholar
  27. Kaminsky, G., & Reinhart, C. (2000). On crises, contagion, and confusion. Journal of International Economics, 51(1), 145–168.CrossRefGoogle Scholar
  28. Kaminsky, G., Lyons, R. K., & Schmukler, S. L. (2004). Managers, investors, and crises: mutual fund strategies in emerging markets. Journal of International Economics, 64(1), 113–134.CrossRefGoogle Scholar
  29. Lo, A. W., & MacKinlay, A. C. (1990). When are contrarian profits due to stock market overreaction? Review of Financial Studies, 3(2), 175–205.CrossRefGoogle Scholar
  30. Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. The Journal of Finance, 66(1), 35–65.Google Scholar
  31. Menzly, L., & Ozbas, O. (2010). Market segmentation and cross-predictability of returns. The Journal of Finance, 65(4), 1555–1580.CrossRefGoogle Scholar
  32. Mori, M., & Ziobrowski, A. J. (2011). Performance of pairs trading strategy in the U.S. REIT market. Real Estate Economics, 39(3), 409–428.CrossRefGoogle Scholar
  33. Odean, T. (1998). Are investors reluctant to realize their losses? The Journal of Finance, 53(5), 1775–1798.CrossRefGoogle Scholar
  34. Shahrur, H., Becker, Y. L., & Rosenfeld, D. (2010). Return predictability along the supply chain: the international evidence. Financial Analysts Journal, 66(3), 60–77.CrossRefGoogle Scholar
  35. Tetlock, P. C. (2007). Giving content to investor sentiment: the role of media in the stock market. The Journal of Finance, 62(3), 1139–1168.CrossRefGoogle Scholar
  36. Tetlock, P. C., Saar-Tsechansky, M., & Macskassy, S. (2008). More than words: quantifying language to measure firms’ fundamentals. The Journal of Finance, 63(3), 1437–1467.CrossRefGoogle Scholar
  37. Tuluca, S., Myer, F., & Webb, J. R. (2000). Dynamics of private and public real estate markets. The Journal of Real Estate Finance and Economics, 21(3), 279–296.CrossRefGoogle Scholar
  38. Veldkamp, L. (2006). Media frenzies in markets for financial information. American Economics Review, 96(3), 577--601.Google Scholar
  39. Vlastakis, N., & Markellos, R. N. (2012). Information demand and stock market volatility. Journal of Banking & Finance, 36(6), 1808--1821.Google Scholar
  40. Zhang, M., & Deng, Y. (2010). Is the mean return of hotel real estate stocks apt to overreact to past performance? The Journal of Real Estate Finance and Economics, 40(4), 497–543.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Real Estate, School of Design and EnvironmentNational University of SingaporeSingaporeSingapore

Personalised recommendations