Information Diffusion in the U.S. Real Estate Investment Trust Market

Abstract

This study examines the information diffusion process in the U.S. Real Estate Investment Trust (REIT) market with a focus on the impacts of changing market environments, information supply, and information demand on the lead-lag effect. The results suggest that a significant lead-lag relationship exists between the lagged returns of big REITs and the current returns of small REITs. This relationship has slightly decreased along with policy and environment changes that occurred in the U.S. REIT market during the study period from 1986 to 2012, while still remaining significant in the most recent REIT market. The process of information diffusion is becoming unstable in recent years and the reverse leadlag effect from small REITs to big REITs is observed especially when REIT market liquidity and return volatility are high. The lead-lag effect among REITs is driven largely by slow adjustment to negative information, which is magnified by a lack of information supply, especially as demand for such information increases. Finally, information flow from REITs with more media coverage to those with less media coverage becomes even more sluggish than the information flow from big REITs to small REITs.

The Impact of Market Condition and Policy Change on the Sustainability of Intra-Industry Information Diffusion in China

“…Especially, we find that the split-share structure reform actually impedes the process of intra-industry information diffusion. These findings are consistent with previous theories, such as Merton [14], Lin and Swanson [15], and Mori [17], which mean some external institutional restrictions, such as policy changes, could significantly affect the process of information intra-industry information diffusion. The intra-industry information diffusion from big firms to small firms becomes slower along with policy changes.…”

“…They discover that foreign investors can facilitate the diffusion of global market information into stock prices. On the other hand, Mori [17] investigates how policy and environmental changes in the Real Estate Investment The trust market could affect the process of information diffusion in the United States (U.S.) market. He discovers that changes of the process of information diffusion depend on both different government policies and changes of firm size.…”

The Impacts of Policy Reform on Information Diffusion in Chinese Real Estate Stocks

“…discover information gradually diffuses in financial market, which is contrary to the Efficient Market Hypothesis (EMH) that states information instantaneously diffuses in an efficient market. Abundant researches continually provide evidences to support the gradual information diffusion in the market (Brennan et al, 1993;Badrinath et al, 1995;Hong and Stein, 1999;Chordia and Swaminathan, 2000;Hou, 2007;Cohen and Frazzini, 2008;Menzly and Ozbas, 2010;Mori, 2015). Importantly, by examining information diffusion in U.S. market, Hou (2007) argues the phenomenon of gradual information diffusion mainly appears intra-industry rather than cross industry or outside industry.…”

“…They claim the impacts of policy reforms are significant to the process of information diffusion. Mori (2015) investigates whether policy reforms in the REIT market influence information diffusion among REIT stocks in US. By analyzing time-series changes of lead-lag effect, he finds changes of the process of information diffusion depend on different government policies and changes of firm size.…”

The direction of media influence: Real-estate news and the stock market

“…Using the stock market to estimate the effect of the media on housing market expectations circumvents these problems. Mori (2015) examines the information diffusion process in the the US real estate investment trust (REIT) market and shows a relationship between lagged returns of companies with media coverage and the current returns of companies without media coverage, suggesting that the media play an important informational role in the market. Media coverage is of specific companies and the REIT market.…”