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The Journal of Real Estate Finance and Economics

Erschienen in:

10.05.2017

Are REIT Investors Overly Optimistic after Equity Offerings?: Evidence from Analyst Forecast Errors

verfasst von: Elizabeth Devos, Erik Devos, Seow Eng Ong, Andrew C. Spieler

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 2/2019

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Abstract

Optimism around Initial Public Offerings is well documented. However, Seasoned Equity Offerings are often surrounded by less optimism. Based on analyst forecast properties for a large number of REITs, we find that REIT analysts tend to be relatively optimistic after IPOs, whereas this tends not to be the case surrounding SEOs. Our results are more pronounced when REITs are bigger and have more analysts following them. Our results are robust for a number of multivariate specifications. Our findings suggest that possible underperformance of REITs after the IPO may be caused by over-optimistic investors.

Vorheriger Artikel 2016 Asia Pacific Real Estate Research Symposium Special Issue

Nächster Artikel The Impact of Geographic and Cultural Dispersion on Information Opacity

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See also Ghosh et al. (2013) who examine operating performance after REIT SEOs. For an investigation into IPO returns, worldwide, see Chan et al. (2013).

Relatedly, in a recent paper Boudry et al. (2010) report evidence that REITs seem to make their capital structure decisions (i.e., issue equity, etc.) consistent with predictions that arise form market timing theory.

There is a large literature that investigates bias in analyst recommendations (i.e., Dugar and Nathan (1995); Lin and McNichols (1998); Michaely and Womack (1999), and, more recently, Iskoz (2003), Malmendier and Shantikumar (2007), Agrawal and Chen (2008), and Kadan et al. (2009)) have demonstrated that analyst bias is at least partly driven by underwriting relationships.

It is important to note that in this paper we are ambiguous on whether REITs under or over perform after IPOs and SEO. Rather, we only investigate whether the market is optimistic/pessimistic about the prospects of the REIT, which, in turn, has been hypothesized as a potential reason for underperformance.

Our results do not change when we use the highest, lowest, or closing stock price of the year.

Price provides the data from his website, http://www.mckayprice.com/research.html

Because we are interested in forecast errors after REIT offerings, the dataset of REITs from CRSP/Compustat starts one year prior to the available REIT forecasts (from I/B/E/S).

Note that we winsorize FE at 5% and 95% to minimize the effect of outliers.

To check whether this is reasonable, we compare the CRSP begindate with the IPO date as reported on SDC (when available). For a random sample of 10 sample REITs, we find that in 9 cases the difference between the begindate and SDC IPO date is 0 or 1 day. In the remaining case, the difference is 10 days.

When we use year dummies instead, our main results do not qualitatively change.

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Titel: Are REIT Investors Overly Optimistic after Equity Offerings?: Evidence from Analyst Forecast Errors
verfasst von: Elizabeth Devos
Erik Devos
Seow Eng Ong
Andrew C. Spieler
Publikationsdatum: 10.05.2017
Verlag: Springer US
Erschienen in: The Journal of Real Estate Finance and Economics / Ausgabe 2/2019
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-017-9608-1

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