Advertisement

The impact of the new real estate sector on REITs: an event study

  • Phillip Fuller
  • Ehab Yamani
  • Geungu Yu
Article
  • 208 Downloads

Abstract

This paper examines the impact of reclassifying equity Real Estate Investment Trust (REITs) in the S&P 500 by transferring them from the Financials sector to a new Global Industry Classification Standard sector named Real Estate in an event-study context. The creation of the new sector had a significant impact on REITs included in the new Real Estate sector. Prior to the event date, REITs experienced significant negative returns. But after the event date, REITs also experienced significant positive returns which dissipated over time. The returns prior to (after) the event date would have resulted in a retail investor incurring losses (gains). While the magnitude of the trading volume increased noticeably prior to the event date, overall trading volume was not discernibly impacted.

Keywords

REITs Event-study methodology Abnormal return Trading volume S&P additions 

JEL Classification

G14 C10 

References

  1. Agrawal J, Kamakura WA (1995) The economic growth of celebrity endorsers: an event study analysis. J Mark 59:56–62CrossRefGoogle Scholar
  2. Ajinkya BB, Jain PC (1989) The behavior of daily stock market trading volume. J Account Econ 11(4):331–359CrossRefGoogle Scholar
  3. Anderson TG (1996) Return volatility and trading volume: an information flow interpretation of stochastic volatility. J Financ 5:169–204CrossRefGoogle Scholar
  4. Anderson RI, Benefield JD, Hurst ME (2015) Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns. J Econ Financ 39:48–74CrossRefGoogle Scholar
  5. Bhattacharya U, Daouk H, Jorgenson B, Kehr C (2000) When an event is not an event: the curious case of an emerging market. J Financ Econ 55:69–101CrossRefGoogle Scholar
  6. Binder J (1998) The event study methodology since 1969. Rev Quant Finan Account 11:111–137CrossRefGoogle Scholar
  7. Boehmer E, Musumeci J, Poulsen AB (1991) Event-study methodology under conditions of event-induced variance. J Financ Econ 30(2):253–272CrossRefGoogle Scholar
  8. Bohjalian T (2016) Real estate in a class of its own how the new real estate GICS sector classification could bring a $100 billion influx of demand and lower volatility. https://www.cohenandsteers.com/assets/content/resources/insight/Real_Estate_in_a_Class_of_Its_Own.pdf
  9. Borchersen-Keto S (2016) Veteran REIT observer sees continued growth for industry. https://www.reit.com/news/videos/veteran-reit-observer-sees-continued-growth-industry
  10. Brown SJ, Warner JB (1980) Measuring security price performance. J Financ Econ 8:205–258CrossRefGoogle Scholar
  11. Campbell CJ, Wasley CE (1996) Measuring abnormal daily trading volume for samples of NYSE/ASE and NASDAQ securities using parametric and nonparametric test statistics. Rev Quant Finan Account 6:309–326CrossRefGoogle Scholar
  12. Carhart MM (1997) On persistence in mutual fund performance. J Financ 52:57–82CrossRefGoogle Scholar
  13. Chan SH, Chen J, Wang K (2014) Does a firm’s entry or exit affect competitors’ value? Evidence from the REIT industry. Working PaperGoogle Scholar
  14. Charles C, Petrasek L (2014) Liquidity risk in stock returns: an event-study perspective. J Bank Financ 45:72–83CrossRefGoogle Scholar
  15. Chen H, Noronha G, Singal V (2004) The price response to S&P 500 index additions and deletions: evidence of asymmetry and a new explanation. J Financ 59(4):1901–1930CrossRefGoogle Scholar
  16. Chesney M, Reshetar G, Karaman M (2011) The impact of terrorism on financial markets: an empirical study. J Bank Financ 35:253–267CrossRefGoogle Scholar
  17. Clark PK (1973) A subordinated stochastic process model with finite variance for speculative prices. Econom 41:135–155CrossRefGoogle Scholar
  18. Copeland TE (1976) A model of asset trading under the assumption of sequential information arrival. J Financ 31:1149–1168CrossRefGoogle Scholar
  19. Cready WM, Ramanan R (1991) The power of tests employing log-transformed volume in detecting abnormal trading. J Account Econ 14(2):203–214CrossRefGoogle Scholar
  20. Epps TW, Epps ML (1976) The stochastic dependence of security price changes and transaction volumes: implications for the mixture of distributions hypothesis. Econom 44:305–321CrossRefGoogle Scholar
  21. Fama EF (1965) The behavior of stock market prices. J Bus 38:383–417Google Scholar
  22. Fama E, French K (1993) Common risk factors in the returns on stocks and bonds. J Financ Econ 33(1):3–56CrossRefGoogle Scholar
  23. Fitzpatrick BD, Shahid A, Wiegele G (2014) Surprising comparison of risk and return factors between Real Estate Investment Trusts (REITs) and the S&P 500 index during the 2000–2011 time. J Bus Econ Res 12(1):47–55Google Scholar
  24. Harris M, Raviv A (1993) Differences of opinion make a horse race. Rev Financ Stud 6:473–506CrossRefGoogle Scholar
  25. Jennings RH, Barry C (1983) Information dissemination and portfolio choice. J Financ Quant Anal 18:1–19CrossRefGoogle Scholar
  26. Jennings RH, Starks LT, Fellingham JC (1981) An equilibrium model of asset trading with sequential information arrival. J Financ 19:143–161CrossRefGoogle Scholar
  27. Kasch M, Sarkar A (2012) Is there an S&P 500 index effect? Federal Reserve Bank of New York Staff Report No 484Google Scholar
  28. Katzeff P (2016) New real estate sector is likely to boost REITs, many mutual funds. Investor’s Business Dailey June 17, 2016. http://www.investors.com/etfs-and-funds/mutual-funds/new-real-estate-sector-is-likely-to-boost-reits-many-mutual-funds
  29. Kyle AS (1985) Continuous auctions and insider trading. Econom 53:1315–1335CrossRefGoogle Scholar
  30. Lydon T (2016) Sector transition may already be baked into REITs, ETFs. NASDA.com
  31. MacKinlay A (1997) Event studies in econ and finance. J Econ Lit 35:13–39Google Scholar
  32. Malic J (2006) Market reaction to changes in the S&P 500 index: an industry analysis. The Park Place Economist 14:80–87Google Scholar
  33. Miyajima H, Yafeh Y (2007) Japan’s banking crisis: an event-study perspective. J Bank Financ 31:2866–2885CrossRefGoogle Scholar
  34. Morse D (1980) Asymmetrical information in securities markets and trading volume. J Financ Quant Anal 15(4):1129–1148CrossRefGoogle Scholar
  35. NAREIT (2016) GICS classification of real estate. Available online at https://www.reit.com/investing/investor-resources/gics-classification-real-estate
  36. Patell JM (1976) Corporate forecasts of earnings per share and stock price behavior: empirical tests. J Account Res 14(2):246–274CrossRefGoogle Scholar
  37. S&P Dow Jones Indices and MSCI (2015) S&P Jones Indices and MSCI announce further revisions to the global industry classification standard structure in 2016. Available online at https://www.msci.com/documents/10199/248121/Revisions+to+GICS+Structure+in+2016/cfded0bf-18bc-46d9-9053-ce22ef287481
  38. Saunders L (2016). When the S&P 500 breaks out REITs, you may get a tax bill. Available online at https://www.wsj.com/articles/when-the-s-p-500-breaks-out-reits-you-may-get-a-tax-bill-1467990564
  39. Savickas R (2003) Event-induced volatility and tests for abnormal performance. J Financ Res 26(2):165–178CrossRefGoogle Scholar
  40. Shalen CT (1993) Volume, volatility and the dispersion of opinion. Rev Financ Stud 6:405–434CrossRefGoogle Scholar
  41. Tauchen G, Pitts M (1983) The price variability-volume relationship on speculative markets. Econom 51:485–505CrossRefGoogle Scholar
  42. Topuz JC, Isik I (2009) Structural changes, market growth and productivity gains of the US real estate investment trusts in the 1990s. J Econ Financ 33:288–315CrossRefGoogle Scholar
  43. Watts W (2016) Laszlo Birinyi is calling the S&P 500’s new 11th sector a Boondoggle. Market Watch. Available online at http://www.marketwatch.com/story/sps-new-real-estate-sector-an-unnecessary-headache-says-laszlo-birinyi-2016-08-29

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018
corrected publication April/2018

Authors and Affiliations

  1. 1.Jackson State UniversityJacksonUSA
  2. 2.College of Business, Tanta UniversityTantaEgypt

Personalised recommendations