Ko Wang

Initial public offerings of equity securities *1: Anomalous evidence using REITs

Abstract In contrast with numerous studies that find significant underpricing for initial public offerings of industrial firms, we document a statistically significant average return of −2.82% on the first trading day for a sample of 87 initial public offerings of real estate investment trusts during the 1971–1988 period. Our overpricing result is invariant to offer price, issue size, distribution method, offer period, and underwriter reputation. Newly issued REITs, on average, substantially underperform a matching sample of seasoned REITs during the first 190 trading days. Interestingly, buyers of overpriced REITs are predominantly individual or non-13(f) institutional investors.

Dividend Policies and Dividend Announcement Effects for Real Estate Investment Trusts

Previous research on real estate investment trusts (REITs) assumes that their dividend policies are determined solely by tax regulations. We observe, however, that REITs often pay out more dividends than are required by tax rules. This paper examines the dividend policies of REITs by drawing inferences from agency-cost theory and tests for the determinants of REIT dividend payout ratios. The study also considers whether the stock market responds differently to the dividend announcement effects of equity and mortgage REITs based on asymmetric information. Our results support agency-cost explanations for dividend policy and suggest a differential announcement effect. Copyright American Real Estate and Urban Economics Association.

Stock Market Reaction to Capital Investment Decisions: Evidence from Business Relocations

We investigate the stock market reaction to 447 announcements of business relocation decisions in the 1978–1990 period. We find that the stock market reaction to such decisions is tied to the motive for the relocation and the implied prospects for the firm, with the type of facility being relocated playing an insignificant role. Our finding reconciles several results in the literature concerning the stock market reaction to announcements of capital investment decisions.

Appraisal Smoothing: The Other Side of the Story

Appraisal smoothing has been widely accepted as an important factor to consider when analyzing real estate returns using appraisal-based data. In this paper, we demonstrate that the general applicability of the appraisal-smoothing arguments developed so far in the literature is limited by the assumptions upon which the arguments are based. We further show that the use of appraisal-based data can result in a higher (not lower) variance than that of true returns. Given this, it might be more fruitful to analyze the unique characteristics of real estate markets as possible explanations for the seemingly low variance observed in appraisal-based (or transaction-based) return indexes. Copyright American Real Estate and Urban Economics Association.

Market Microstructure and Real Estate Returns

This paper examines the Real Estate Investment Trust (REIT) market microstruc-ture and its relationship to stock returns. When compared with the general stock market, REIT stocks tend to have a lower level of institutional investor participation and are followed by fewer security analysts. In addition, REIT stocks that have a higher percentage of institutional investors or are followed by more security analysts tend to perform better than other REIT stocks. Our results seem to confirm Jensens (1993, p. 868) proposition that ownership structure (that is, who owns the firms securities) affects the value of the firm. Our findings also have implications about the well documented phenomenon that the financial performance of Commingled Real Estate Funds (CREFs) is better than that of REITs. Copyright American Real Estate and Urban Economics Association.

The Impact of Institutional Investors on the Monday Seasonal

It is well documented that the mean Monday return is significantly negative and is lower than the mean return on other weekdays. Using institutional stock holdings information during the 19811998 period, we document that the Monday seasonal is stronger in stocks with low institutional holdings and that the Monday return is not significantly different from the mean Tuesday to Friday returns for stocks with high institutional holdings during the 19901998 period. Our study provides direct evidence to support the belief that the Monday seasonal may be related to the trading activities of less sophisticated individual investors.

Capital Structure Decisions in Real Estate Investment

This study examines the financing decisions of real estate investors and the choice of capital structure when acquiring income-producing properties. Drawing from the literature in finance and real estate, we develop a capital structure model for real estate investment and derive six hypotheses regarding the relationship of the overall loan-to-value ratio chosen by an investor to selected characteristics of the investment. The hypotheses are then tested using financing data from a sample of apartment and commercial transactions over a fifteen-year period in a specific real estate market. The empirical findings strongly support the importance of depreciation deductions, financial distress costs, capital constraints, tax rates, and interest rates as determinants of the capital structure of real estate investors. Copyright American Real Estate and Urban Economics Association.

Optimal Comparable Selection and Weighting in Real Property Valuation: An Extension

Vandell (1991) recently developed a rigorous minimum variance technique for selecting and weighting comparables in real estate appraisal. This article extends Vandells methodology in three areas: (1) an alternative objective function; (2) an approach that explicitly recognizes the non-negativity constraint on comparable weights; and, (3) a more robust comparable inclusion process. Using Vandells data, we show how our methodology modifies Vandells results. Copyright American Real Estate and Urban Economics Association.

Overbuilding: A Game-Theoretic Approach

The persistence of excess vacancy has long been documented in the literature. We propose that, because vacant land does not produce income, there is a tendency for developers to build whenever they can identify a development opportunity. Since developers have to compete with each other for the development opportunity, in the aggregate, developers will supply more units than the demand in the market. In the face of an oversupply, we show that, under certain circumstances, developers will not lower the rental rate to eliminate vacancy space. Our model also has implications for investment decisions dealing with projects that could take advantage of existing but not fully utilized assets. Copyright American Real Estate and Urban Economics Association.

The impact of rental properties on the value of single-family residences

Abstract This study examines the effects that single-family rental properties in a residential neighborhood have on the value of single-family residences in that area. The analysis blends real estate valuation concepts with evidence found in the housing maintenance literature and urban succession theory to develop testable hypotheses regarding the property-specific, proximity-related, and neighborhood-wide impacts of rental properties on property values. The data used to test the hypotheses include the tenure status of 23,119 single-family residences and 1,162 single-family sales. Regression results support all three hypotheses. Although numerous studies on the value impacts of other externalities have been published, this is the first study to examine the separation of property rights. The results of this study provide additional insights into housing maintenance and also have implications for neighborhood zoning regulations.