Alan J. Ziobrowski

Abnormal Returns from the Common Stock Investments of the U.S. Senate

The actions of the federal government can have a profound impact on financial markets. As prominent participants in the government decision making process, U.S. Senators are likely to have knowledge of forthcoming government actions before the information becomes public. This could provide them with an informational advantage over other investors. We test for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993-1998. We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a portfolio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive.

Performance of Pairs Trading Strategy in the U.S. REIT Market

We examine the performance of pairs trading in the U.S. REIT market compared with that in the U.S. general stock market over the period 1987 to 2008. The results suggest that the REIT market provided superior profit opportunities for this strategy over common stocks after accounting for the effect of the bid‐ask bounce between 1993 and 2000. This was likely because of the unique characteristics of REITs, which permitted the selection of good pairs of close substitutes and the structural changes that occurred in 1993 in the REIT market. The superior trading profits in REITs disappear after 2000.

Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives

A previous study suggests that U.S. Senators trade common stock with a substantial informational advantage compared to ordinary investors and even corporate insiders. We apply precisely the same methods to test for abnormal returns from the common stock investments of Members of the U.S. House of Representatives. We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).

Psychological and Cultural Factors in the Choice of Mortgage Products: A Behavioral Investigation

Using data from three countries that differ economically, culturally, and geographically, this study examines the role of Prospect Theorys reflection effect, a psychological factor, in combination with Uncertainty Avoidance (UA), a cultural factor, on the choice of mortgage products. Experiments were conducted using business professionals in the United States, Germany, and Japan. The results suggest that risk-averse people tend to become more risk seeking, leaning more toward adjustable-rate mortgages (ARMs) when choosing a mortgage type, and that this psychological effect may underlie the mortgage choices of people who tend to choose ARMs, even across countries with different cultures.

An investigation into REIT performance persistency

Using equity real estate investment trust (EREIT) returns from the CRSP/Ziman REITs database, portfolios of Real Estate Investment Trusts (REITs) are ranked based on past performance and evaluated for persistence in future years using various performance measurement models. After adjusting for risk with Carhart’s (1997) 4‐factor model, we find no evidence of persistence. However, we do find strong evidence of performance reversal with two‐year and three‐year lagged return periods and holding periods. The results suggest investors tend to overreact based on long‐term performance records. Thus investors seem to take a much longer period of time to formulate an opinion regarding a REIT’s performance record than previously assumed by earlier researchers.

The Information Content of REIT Credit Rating Actions and Transparency

We examine the short-run and long-run price reaction of equity real estate investment trust (REIT) shares following credit rating actions, testing the transparency of the REIT structure. Generally, the economic effect on the stock price is subdued for both upgrades and downgrades compared to prior literature examining the broader U.S. equity market. An examination of trading volume revealed a significant increase in trading in reaction to downgrade credit rating changes, with a more subdued response to upgrades. The findings support the notion that REITs are more publicly forthcoming about the expectation of positive news in comparison to negative news.

Wealth effects of REIT property-type focus changes: evidence from property transactions and joint ventures

Using a sample of 678 property portfolio changes (acquisitions, dispositions and joint ventures) of the US Real Estate Investment Trusts (REITs) during 1990–2009, we investigate how investors react to changes in a REIT’s property-type focus. We find a significant negative market reaction to acquisition and acquisitional Joint Venture events that decrease property-type focus. We also find some statistically insignificant evidence of a wealth benefit from dispositional events that increase property-type focus. Overall, our findings are consistent with explanation for the lack of diversification in REITs; investors prefer to make their own diversification decisions using narrowly focused REITs.

The Relationship between Indian Realty Stocks and Online Searches

We examine the relationship between online real estate searches by investors and the future returns of publicly traded real estate stocks in India. We find evidence that the relevant online search volume indices are significantly related to the future movements in real estate stock returns. However, the association between online searches and stock returns diminishes quickly. The findings suggest that the significance of the online searches is driven by the online investor’s attention to real estate stocks rather than the searches’ representativeness of the fundamental shifts in the market. JEL Classification: R3, G11, G12, G14

Dispositional joint ventures as REIT financing strategy

A dispositional joint venture (DJV) represents an alternative disposal strategy used by USA real estate investment trusts (REITs), which has received limited attention in the real estate investment and finance literature. REITs form DJVs by selling a partial interest in a property to a financier, for example, a pension fund. We hypothesise that REITs pursue this financing strategy when in need of funds and faced with restricted capital market access. We investigate the motivation to form a DJV at the REIT and property level. Using multinomial logistic regression, we find that, compared to REITs with full or no disposals, DJV REITs are characterised by higher leverage, lower market-to-book values and a lower dividend payout ratio. These findings support our hypothesis that DJV forming REITs face restricted capital market access and use DJVs to obtain financing in the private equity market. Also DJV properties appear to be of a higher quality than completely sold properties, which may explain why REITs are interested in maintaining a partial interest and thus opt for a DJV instead of an outright sale.

The Borrower's Perceived Risk in Mortgage Choice

We investigate how borrowers perceive the risk in the adjustable rate mortgage (ARM) versus fixed rate mortgage (FRM) choice. We develop a mortgage choice model where the coefficient on the long‐term bond risk premium is conditional on the borrowers perceived risk. We show that the perceived risk fluctuates over time according to the short‐term interest rate level and housing market conditions. We find that when the short‐term rate level is high (low), the borrowers perceive low (high) risk of a short‐term rate rise, thus opting for ARMs (FRMs). Also, during a down housing market they become more risk‐averse perceiving higher risk in choosing ARMs. The perceived risk level alters the borrowers’ sensitivity to the long‐term bond risk premium.