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

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 stock markets.

The Intra-Industry Spillovers of Indonesian Right Offerings

“…Most research findings in the related literature are predominated with negative market response to the issuance of rights, both in the short and long term, over the findings revealing the positive market responses (Bessler et al, 2016;Devos et al, 2017;Dutta, 2017;Eom, 2014;Kothari et al, 2016;Lizińska, 2018;Mansali and Daadaa, 2018). In most cases, the negative responses are closely related to the presumption that the right issues signals an information asymmetry that is not favourable for investors.…”

“…Hypotheses Development. In the literature, the arising issues regarding market reactions following right issues can be generally classified into two main factions, namely short-term reactions (Ariff et al, 2007;Barnes and Walker, 2006;Feng et al, 2018;Iqbal, 2008;Krishnan et al, 2010;Paskelian and Bell, 2010;Shahid et al, 2010) and long-term reactions (Andrikopoulos, 2009;Bayless and Jay, 2008;Devos et al, 2017;Du et al, 2016;Dutta, 2017;Mansali and Daadaa, 2018;Silva and Bilinski, 2015).…”

“…Some researchers found a positive response to the issuance of rights (Alhashel and Alojayan, 2015;Ariff et al, 2007;Paskelian and Bell, 2010), while some others found a negative response (Akron, 2013; Barnes and Walker, 2006;Feng et al, 2018;Iqbal, 2008;Krishnan et al, 2010). Some researchers explain these different responses by a variety of approaches, including by associating them with variations in the motivation of right offerings among companies (Brisker et al, 2014;Kim and Purnanandam, 2014;Veld et al, 2018;Yang et al, 2016), variations of inherent attributes in the issuers (Chan and Walter, 2014;Chen, 2017;Dutordoir et al, 2018;Fu and Huang, 2016;Liu et al, 2016;Naveen et al, 2018), and variations of investor biases in responding to the rights (Devos et al, 2017;Dutta, 2017;Huang et al, 2016).…”