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This article examines real estate investment trusts (REITs) to determine the correspondence between short interest and subsequent prices. The theoretical basis for our tests comes from the overvaluation conditions created by a combination of costly short selling and heterogeneous beliefs. This article exploits the unique characteristics of REITS as they are similar with respect to high dividend payouts and differentiated by underlying real asset investments. An innovative aspect of the methodology involves partitioning firms based on investment focus as a proxy for transparency and as a determinant of heterogeneous beliefs regarding valuation. The findings (i) affirm the information content of REIT short interest and (ii) highlight the importance of investment focus in resolving the divergence in investor opinions of value. Overvaluation conditions exist among REITs with greater short interest and less transparency, whereas such valuation conditions do not appear among transparent REITs, regardless of the level of short selling.Financial markets serve an essential role in the dissemination of information that is transmitted through the trading process and reflected in market prices. Yet some scholars have argued that markets do not always process information efficiently, hence market prices may deviate from fundamental value. Miller (1977) illustrates how the market price of a risky security may be overvalued due to a joint condition of costly short selling and heterogeneous investor beliefs. 1

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