Market Signals Associated with REIT IPOs

• Published in: The journal of real estate finance and economics Vol. 28; no. 4; pp. 355 - 367
• Main Authors: Akhigbe, Aigbe, Johnston, Jarrod, Madura, Jeff, Springer, Thomas M
• Format: Journal Article
• Language: English
• Published: Norwell Springer Nature B.V 01-05-2004
• Subjects: Competition; Disclosure; Economic theory; Economics; Finance; Initial public offerings; Investment; Investments; Market; Prices; Real estate; REITs; Stock exchange; Stock prices; Studies; U.S.A; Valuation; United States > US
• ISSN: 0895-5638; 1573-045X
• DOI: 10.1023/B:REAL.0000018787.30315.ce

Previous studies have found signifi;cant but time-varying valuation effects associated with real estate investment trusts initial public offerings (REIT IPOs). Because REIT IPOs may disclose relevant information about real estate market conditions, they may serve to revalue existing real estate securities. To determine whether REIT IPOs signal information that is impounded into the share prices of other real estate securities, we assess the returns on "rival'' portfolios of existing real estate securities upon the issuance of the IPO. On average, the "rival'' portfolios experience insignificant effects on the REIT IPO filing date, but negative and significant abnormal returns around the issue date. Across-sectional analysis of combined effects at the time of the filing date and issue date shows that the negative effects on the "rival'' portfolios are more pronounced when (1) the size of the REIT IPO is larger, (2) market conditions are relatively weak, (3) more REIT IPOs come to market, and (4) the IPO is not associated with an umbrella partnership REIT.[PUBLICATION ABSTRACT]