Efficiency in the Market for REITs: Further Evidence

The Consequences of REIT Index Membership for Return Patterns

“…This finding suggests that a firm's property sector becomes a more significant determinant of REIT returns following inclusion of the firms in a major stock market index, implying that the information conveyed in the firms' property sector exposure increases in significance in determining correlation patterns, and in that sense pricing efficiency improves through index membership. Our finding is consistent with the existing literature relating pricing efficiency to index membership (Aguilar, Boudry, and Connolly, 2015;Huang, Su, and Chiu, 2009;Jirasakuldech and Knight, 2005). However, our findings extend the existing literature by suggesting that the efficiency gains lie in the improved evaluation of the underlying property type fundamentals and their consequences for REIT performance as returns appear to become more closely associated with the performance of the underlying properties in terms of sector and geography.…”

“…A group of studies explores the effects of index membership on pricing efficiency. The consensus finding is that REIT market efficiency somewhat improves with index membership (Aguilar, Boudry, and Connolly, 2015;Huang, Su, and Chiu, 2009;Jirasakuldech and Knight, 2005). Another study closely related to our work is Ambrose, Lee, and Peek (2007) who examine the correlation between index-REITs and non-index REITs to estimate spillovers of investor sentiment and market frictions across those firm categories.…”

“…The real estate literature highlights the pricing efficiency effect (Aguilar, Boudry, and Connolly, 2015;Huang, Su, and Chiu, 2009;Jirasakuldech and Knight, 2005). The increased visibility of firms that form part of an index or a distinct segment of the stock market may enhance analyst coverage and attract institutional investors.…”

Are Markets Adaptive? Evidence of Predictability and Market Efficiency of Lodging/Resort Reits

“…Several papers have also examined the efficiency and predictability of REITs (e.g., Cabrera, Wang, & Yang, 2011;Huang, Su, & Chiu, 2009;Jirasakuldech & Knight, 2005;Kleiman, Payne, & Sahu, 2002;Kuhle & Alvayay, 2000;Serrano & Hoesli, 2010;Schindler, Rottke, & Fuss, 2010;Schindler, 2011;Su, Cheung, & Roca, 2012). These studies use different methodologies to examine national and international markets during different periods with different data frequencies.…”

“…These studies use different methodologies to examine national and international markets during different periods with different data frequencies. While Kleiman et al (2002) and Jirasakuldech and Knight (2005) provide some evidence of efficiency in REITs, most of the literature on REIT efficiency find these markets to be informationally inefficient (Kuhle & Alvayay, 2000;Huang et al, 2009;Schindler et al, 2010).…”