H. Swint Friday

Anomalous Evidence on Operating Performance Following Seasoned Equity Offerings: The Case of REITs

We examine the operating performance of 200 equity real estate investment trusts (REITs) following seasoned equity offerings (SEO) made between 1990 and 1996. Our sample shows flat to increasing levels of operating performance changes prior to the SEO; and increasing raw performance changes and flat industry-adjusted performance changes following the SEO. Cross-sectional test results on the operating performance changes are consistent with existing theory. Our results contrast with industrial firm results, where performance changes are negative following an SEO. We attribute this difference to structural differences in REITs that limit the levels of internal capital available to REIT managers.

Equity REITs and the January Effect

Traditionally, the potential benefits of a particular investment strategy are explored using relatively simple risk and return ratios. In fact, a more complete look at the relative performance of the entire return distribution may be offered through the use of stochastic dominance. In this “academic presentation” the authors use stochastic dominance to provide further evidence of the benefits of equity REITs and the existence of a “January effect.”