Skip to main content
Fachgebiete
Automobil + Motoren Bauwesen + Immobilien Business IT + Informatik Elektrotechnik + Elektronik Energie + Nachhaltigkeit Finance + Banking Management + Führung Marketing + Vertrieb Maschinenbau + Werkstoffe Versicherung + Risiko
DE
EN
Themenseiten
Organisationspsychologie Projektmanagement Marketing Smart Manufacturing
Bücher
Zeitschriften
Weitere Formate
Podcasts Webinare Technik Webinare Wirtschaft Kongresse Veranstaltungskalender Awards
Jetzt Einzelzugang starten
Zugang für Unternehmen
Referenzkunden
ATZ-Fachkongress

Chassis.tech plus 2024


4 Kongresse in einer Veranstaltung

Treffen Sie in München die Fachleute von Chassis, Lenkung, Bremsen sowie Reifen/Räder.
Erweiterte Suche
Anmelden
nach oben
The Journal of Real Estate Finance and Economics
Erschienen in: The Journal of Real Estate Finance and Economics 1/2021

18.05.2020

Did Real Estate Professionals Anticipate the 2007-2008 Financial Crisis? Evidence from Insider Trading in the REITs

verfasst von: Jianfu Shen, Eddie C.M. Hui, Kwokyuen Fan

Erschienen in: The Journal of Real Estate Finance and Economics | Ausgabe 1/2021

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config
loading …

Abstract

This research examines whether real estate professionals detected the property bubble and foresaw the consequent financial crisis of 2007-2008. By analysing the insider trading activities within REITs from 1996 to 2010, we find that REIT insiders reduced their holdings significantly during the real estate boom period as early as 2004, before the financial crisis. Difference-in-difference analysis reveals that REIT insiders cashed out their positions more aggressively than insiders in real estate and construction firms. The findings support the informed trader hypothesis that managers and employees in REITs anticipated the burst of the real estate bubble and the imminent financial crisis, and shifted their wealth away from the real estate market to avoid potential losses. We find no evidence to support the biased belief hypothesis (Cheng et al., 2014) that REIT insiders were over-optimistic during the real estate boom period or that their inside trading behaviour was affected by local market performance.
Vorheriger Artikel Trade-offs between Asset Location and Proximity to Home: Evidence from REIT Property Sell-offs
Nächster Artikel On the Consequences of the Discontinuation of the Eleventh District Cost of Funds Index

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Jetzt informieren
Anhänge
Nur mit Berechtigung zugänglich
Fußnoten
1
Following previous studies in the literature of insider trading (e.g., Seyhun, 1986; Rozeff and Zaman, 1988), we take the trades by directors, managers and employees within their own firms as insider trading. The trades by the insiders are not necessarily illegal practice as would be trades based on non-public and material information.
 
2
Because of active management skills and experience in real estate valuation, REIT insiders could be more informed about the market than some real estate professionals such as agents and operators. We take REIT insiders as sophisticated real estate professionals who have superior knowledge of the property market and systemic risk in that market. They also have significant personal wealth in the form of equity holdings in their managed REITs.
 
3
Some researchers had already warned the market about the existence of the real estate bubble before its collapse (e.g., Case and Shiller, 2003; Himmelberg et al., 2005; Laing, 2005; Krugman, 2005; Shiller 2006, 2007; Mayer, 2006; Smith and Smith, 2006)
 
4
The literature has shown that insiders possess private information on their managed firms (Jaffe, 1974; Finnerty, 1976a, 1976b; Rozeff and Zaman, 1988). Insiders in REITs have superior information about the fundamental value of properties and act on it through informed trading (Damodaran and Liu, 1993; Cline et al., 2014). Active management within REITs requires managers to select, manage and operate properties to create value for shareholders (Ambrose and Linneman, 1998, 2001), which brings an information advantage to REIT insiders in the evolution of the real estate market.
 
5
Some cities in the US have experienced persistently large growth rates in house prices over a long period (Himmelberg et al., 2005; Gyourko et al., 2013). Buyers in these markets might form expectations of continued high growth rates in the future (Sinai and Souleles, 2005; Gyourko et al., 2013).
 
6
The insiders are required to report their open-market trades under the Securities and Exchange Act of 1934. Insiders include officers, directors, affiliates, and beneficial owners in a firm. Thomson Reuter collects the insider trading data from SEC filings. The data are widely used in studies reported in the literature (e.g., Gao et al., 2014; Ali and Hirshleifer, 2017; Tang and Xin, 2017; Fu et al., 2019).
 
7
The sample period covers the real estate boom period 2004-2006, the pre-crisis period 2006-2007 and the crisis period 2007-2008. Our results are robust to different sample periods.
 
8
Following Fama-French 48 industry classifications, construction stocks are defined as the firms with SIC codes as 1500-1511, 1520-1549, 1600-1799, and real estate stocks are the firms with SIC codes as 6500, 6510, 6512-6515, 6517-6532, 6540-6541, 6550-6553, 6590-6599 and 6610-6611.
 
9
The remaining firms did not have reported insider transactions during the sample period.
 
10
The 20 major metropolitan areas include Phoenix Metropolitan Area, Greater Los Angeles, San Diego County, San Francisco, Denver-Aurora Metropolitan Area, Washington Metropolitan Area, South Florida Metropolitan Area, Tampa Bay Area, Atlanta Metropolitan Area, Chicago Metropolitan Area, Greater Boston, Metro Detroit, Minneapolis-Saint Paul, Charlotte Metropolitan Area, Las Vegas Metropolitan Area, New York Metropolitan Area, Greater Cleveland, Greater Portland, Dallas–Fort Worth Metroplex and Seattle Metropolitan Area. The index of 100 applies to January 1996. Housing index movements for the leading and non-leading groups are shown in Figure 2.
 
11
The leading group includes Las Vegas Metropolitan Area, Greater Los Angeles, South Florida Metropolitan Area, Washington Metropolitan Area, Phoenix Metropolitan Area and Tampa Bay Area. The remaining 14 areas are classified among the non-leading group.
 
12
The housing returns calculated from the Case-Shiller U.S. National Index are highly related to the REIT market returns measured by the CRSP Ziman REIT Value Weighted Index. The results remain similar if we include the REIT market returns or the returns for sub-markets based on the property types in the regressions.
 
13
Cziraki (2018) does not give evidence on abnormal insider sales observed during the real estate boom period. Our findings show that REIT insiders significantly reduced their exposure to the real estate market when the housing price was still on a rising trend.
 
14
Appendix 2 gives the sample of real estate stocks in Panel A and the summary statistics in the sample in Panel B. Panel C indicates that insiders in real estate firms also anticipated the burst of the real estate bubble and reduced the real estate exposure by selling their company stocks.
 
15
Gyourko et al. (2013) define the superstar cities as the cities in metropolitan statistical areas with a high demand for housings but inelastic and limited supply. The superstar cities have a persistently larger growth rate of home price and price-to-rent ratio than other cities.
 
Literatur
Adebambo, B., Brockman, P., & Yan, X. S. (2015). Anticipating the 2007–2008 financial crisis: Who knew what and when did they know it? Journal of Financial and Quantitative Analysis, 50(4), 647–669.
Ali, U., & Hirshleifer, D. (2017). Opportunism as a firm and managerial trait: Predicting insider trading profits and misconduct. Journal of Financial Economics, 126(3), 490–515.
Ambrose, B. W., & Linneman, P. D. (1998). Old REITs and new REITs. In Working paper. Real Estate Center: Wharton School of the University of Pennsylvania.
Ambrose, B., & Linneman, P. (2001). REIT organizational structure and operating characteristics. Journal of Real Estate Research, 21(3), 141–162.
Barberis, N. (2013). Psychology and the financial crisis of 2007-2008. In M. Haliassos (Ed.), Financial innovation: Too much or too little (pp. 15–28). Cambridge: MIT Press.
Bebchuk, L. A., Cohen, A., & Spamann, H. (2010). The wages of failure: Executive compensation at bear Stearns and Lehman 2000-2008. Yale Journal on Regulation, 27(2), 257–282.
Benabou, R. (2013). Groupthink: Collective delusions in organizations and markets. Review of Economic Studies, 80(2), 429–462.
Bhagat, S., & Bolton, B. (2014). Financial crisis and bank executive incentive compensation. Journal of Corporate Finance, 25, 313–341.
Bonaime, A. A., & Ryngaert, M. D. (2013). Insider trading and share repurchases: Do insiders and firms trade in the same direction? Journal of Corporate Finance, 22, 35–53.
Burnside, C., Eichenbaum, M., & Rebelo, S. (2016). Understanding booms and busts in housing markets. Journal of Political Economy, 124(4), 1088–1147.
Case, K. E., & Shiller, R. J. (2003). Is there a bubble in the housing market? Brookings Papers on Economic Activity, 2003(2), 299–362.
Case, K. E., Shiller, R. J., & Thompson, A. (2012). What have they been thinking? Home buyer behavior in hot and cold markets. Brookings Papers on Economic Activity, 45(2), 265–315.
Cheng, I. H., Raina, S., & Xiong, W. (2014). Wall street and the housing bubble. American Economic Review, 104(9), 2797–2829.
Cline, B., Fu, X., Springer, T., & Tang, T. (2014). Insider trading in REITs: Evidence from informed stock option exercise around seasoned equity offerings. Journal of Real Estate Research, 36(4), 511–540.
Cohen, L., Malloy, C., & Pomorski, L. (2012). Decoding inside information. The Journal of Finance, 67(3), 1009–1043.
Cziraki, P. (2018). Trading by bank insiders before and during the 2007–2008 financial crisis. Journal of Financial Intermediation, 33, 58–82.
Damodaran, A., & Liu, C. H. (1993). Insider trading as a signal of private information. The Review of Financial Studies, 6(1), 79–119.
Fahlenbrach, R., & Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of Financial Economics, 99(1), 11–26.
Finnerty, J. E. (1976a). Insiders and market efficiency. The Journal of Finance, 31(4), 1141–1148.
Finnerty, J. E. (1976b). Insiders' activity and inside information: A multivariate analysis. Journal of Financial and Quantitative Analysis, 11(2), 205–215.
Fu, X., Kong, L., Tang, T., & Yan, X. (2019). Insider trading and shareholder investment horizons. Forthcoming: Journal of Corporate Finance.
Gangopadhyay, P., Yook, K. C., & Haley, J. D. (2019). Bank bailouts and corporate insider trading during the financial crisis of 2007–2009. Review of Quantitative Finance and Accounting, 52(1), 35–83.
Gao, F., Lisic, L. L., & Zhang, I. X. (2014). Commitment to social good and insider trading. Journal of Accounting and Economics, 57(2-3), 149–175.
Glascock, J. L., Lu, C., & So, R. W. (2000). Further evidence on the integration of REIT, bond, and stock returns. The Journal of Real Estate Finance and Economics, 20(2), 177–194.
Gyourko, J., Mayer, C., & Sinai, T. (2013). Superstar cities. American Economic Journal: Economic Policy, 5(4), 167–199.
Himmelberg, C., Mayer, C., & Sinai, T. (2005). Assessing high house prices: Bubbles, fundamentals and misperceptions. Journal of Economic Perspectives, 19(4), 67–92.
Jaffe, J. F. (1974). Special information and insider trading. The Journal of Business, 47(3), 410–428.
Jagolinzer, A. D., Larcker, D. F., Ormazabal, G., & Taylor, D. J. (2014). The information content of insider trades around government intervention during the financial crisis. Stanford Graduate School of Business, Stanford University, Stanford: Working paper.
Jenter, D. (2005). Market timing and managerial portfolio decisions. The Journal of Finance, 60(4), 1903–1949.
Lakonishok, J., & Lee, I. (2001). Are insider trades informative? The Review of Financial Studies, 14(1), 79–111.
Mayer, C. J. (2006). Comments and discussion: Bubble, bubble, where’s the housing bubble? Brookings Papers on Economic Activity, 2006(1), 51–59.
Meulbroek, L. K. (1992). An empirical analysis of illegal insider trading. The Journal of Finance, 47(5), 1661–1699.
Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies, 22(1), 435–480.
Philippas, N., Economou, F., Babalos, V., & Kostakis, A. (2013). Herding behavior in REITs: Novel tests and the role of financial crisis. International Review of Financial Analysis, 29, 166–174.
Ravina, E., & Sapienza, P. (2010). What do independent directors know? Evidence from their trading. The Review of Financial Studies, 23(3), 962–1003.
Rozeff, M. S., & Zaman, M. A. (1988). Market efficiency and insider trading: New evidence. Journal of Business, 61(1), 25–44.
Seyhun, H. N. (1986). Insiders’ profits, costs of trading, and market efficiency. Journal of Financial Economics, 16(2), 189–212.
Shiller, R. J. (2006). Comments and discussion: Bubble, bubble, where’s the housing bubble? Brookings Papers on Economic Activity, 2006(1), 59–67.
Shiller, R. J. (2007). Understanding recent trends in house prices and homeownership (pp. 89–123). Federal Reserve Bank of Kansas City: Proceedings - Economic Policy Symposium - Jackson Hole.
Sinai, T., & Souleles, N. S. (2005). Owner-occupied housing as a hedge against rent risk. The Quarterly Journal of Economics, 120(2), 763–789.
Smith, M. H., & Smith, G. (2006). Bubble, bubble, where's the housing bubble? Brookings Papers on Economic Activity, 2006(1), 1–67.
Tang, M., & Xin, H. C. (2017). Asymmetric timely loss recognition and insider trading profitability. Working paper: Stern School of Business, New York University, New York.
Metadaten
Titel
Did Real Estate Professionals Anticipate the 2007-2008 Financial Crisis? Evidence from Insider Trading in the REITs
verfasst von
Jianfu Shen
Eddie C.M. Hui
Kwokyuen Fan
Publikationsdatum
18.05.2020
Verlag
Springer US
Erschienen in
The Journal of Real Estate Finance and Economics / Ausgabe 1/2021
Print ISSN: 0895-5638
Elektronische ISSN: 1573-045X
DOI
https://doi.org/10.1007/s11146-020-09763-8

Weitere Artikel der Ausgabe 1/2021

The Journal of Real Estate Finance and Economics 1/2021 Zur Ausgabe

OriginalPaper

The Effect of Legal Environment and Regulatory Structure on Performance: Cross-Country Evidence from REITs

OriginalPaper

On the Consequences of the Discontinuation of the Eleventh District Cost of Funds Index

OriginalPaper

The Role of Target Termination Fees in REIT Mergers

OriginalPaper

Trade-offs between Asset Location and Proximity to Home: Evidence from REIT Property Sell-offs