Hospitality REITs and financial crisis: a comprehensive assessment of market quality

Abstract

Purpose The purpose of this paper is to examine market microstructure differences in stock market quality for hospitality real estate investment trusts (REITs) during the pre- and post-financial crisis eras. It provides insight on different trading strategies based on the underlying liquidity and volatility of hospitality REITs as compared traditional REITs and the broader market. Design/methodology/approach The paper uses established microstructure measures for liquidity, trading volumes and risk assessment and compares daily and intraday trading patterns of REITs, hospitality REITs and the broad market. Findings The results suggest a quicker recovery of performance for hospitality REITs and some fundamental increases in liquidity measures post-crisis. The results of the study highlight the differences in trading volumes, liquidity and risk profile of hospitality REITs compared to traditional REITs both in the pre- and post-financial crisis periods. Practical implications The quicker recovery of hospitality REITs in key trading measures may suggest flight to quality during periods of high volatility. Originality/value This study fills the gap in the literature relative to microstructure studies and provides information to help hotel firms and portfolio managers choose an appropriate organizational structure and investment vehicle, respectively.

Bubbles in US hotel/lodging real estate investment trusts

“…However, investors seek to acquire such assets at or below their fair values rather than purchase overvalued properties. Jain et al (2017) show that intraday trading in hotel REITs increased significantly after the 2008 FEC, and hotel REITs became less volatile.…”

“…By contrast, An et al (2016) find a positive relationship between bank ownership and REIT crash risk. Jain et al (2017) show that hotel REITs have much higher trading volume than other REIT subsectors. In addition, intraday trading in hotel REITs increased significantly post-2008 FEC.…”

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

“…In a subsequent study, Payne and Waters (2007), show that lodging is the only REIT subsector to exhibit behavior consistent with periodically collapsing bubbles. Lodging REITs have a higher trading volume, both before and after-the financial crisis of 2008, compared to other subsectors (Jain, Robinson, Singh, & Sunderman, 2017). These findings motivate us to dig deeper into research regarding the lodging REIT subsector.…”

An application of the Fama–French three-factor model to lodging REITs: A 20-year analysis

“…Since their introduction to the public as viable equity investments, lodging REITs have grown both in terms of numbers and market capitalization (Gu and Kim, 2003; Sarheim, 2006) due to their popularity among investors (Jain et al., 2017). Kim et al.…”

“…To date, existing research addressing the performance of lodging REITs have used CAPM derived models and have examined the performance of this asset class for periods less than 20 years (Gu and Kim, 2003; Jackson, 2008, 2009; Kim and Jang, 2012; Kim et al., 2002a, 2002b; Kim et al., 2011). The current study aims to depart from this pattern by applying the Fama–French three-factor model to examine lodging REITs performance, and leverage one of the major attributes of the three-factor model to classify them into buckets or clusters based on their risk exposure over a 20-year period.…”