We evaluate real estate investment trust (REIT) responses to the release of REIT-specific and macroeconomic news over two periods with differing economic climates. More specifically, using high-frequency data, we track the response function over a period of 60 minutes following each announcement. Tests show REIT-specific information to have larger, and in many instances opposite, effects to that of macroeconomic news. REITs also tend to be more sensitive to public information when the economy experiences a downturn. REIT size, leverage, and focus also play an important mediating role between REIT trading activity and public information.
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We analyze the contemporaneous processing of information in real estate investment (REITs), and how the state of the economy, REIT size, leverage, and focus mediate this process. To do this, two important elements of public information-macroeconomic and REIT-specific-are investigated.1 Based on related evidence from equity markets, there are good reasons to consider both sources of information. For instance, the literature documents evidence that stock markets react to macroeconomic news. Chen, Roll, and Ross (1986) note that industrial production, measures of unanticipated inflation, and changes in expected inflation are all priced factors in explaining stock returns. In a similar vein, McQueen and Roley (1993) suggest that these responses vary with the state of the economy. These findings extend to other markets. Ederington and Lee (1993) find evidence in Treasury futures markets of higher volatility shortly after the market opens, corresponding to the release of economic news. Foreign exchange markets also show strong responses to economic information (e.g., Almeida, Goodhart, and Payne, 1998). These are but a few of the studies that successfully document the effects of economic information on asset prices. On the other hand, the evidence with firm-specific news is mixed. Roll (1988) has difficulty finding the effects of firm-specific news on a sample of 96 large stocks and notes that the explanatory power of the return regressions actually improves when firm-specific news dates are removed. Similar evidence, or the lack thereof, is documented by others (e.g., Cutler, Poterba, and Summers, 1989). On the other hand, Barry and Howe (1994), employing intraday data in half-hourly intervals, find that news stories, reported by leading news outlets, have a positive, albeit moderate, effect on stock trading volume. However, they also find the effects on price volatility to be less clear [see also Mitchell and Mulherin (1994)]. More recently, Christie- David, Lee, and Moore (2010) and Engle, Hansen, and Lund (2011), employing high-frequency trades databases, find that firm-specific information explains a significant proportion of stock market activity. Their results suggest that news observed by a broad set of market participants is likely to be incorporated rapidly.
L i n e s o f I n q u i r y
We distinguish our study from prior work in at least three ways. First, we examine contemporaneous REIT responses to public information. To the best of our knowledge, we have yet to find a rigorous attempt to relate intraday information effects with REIT securities.2 This, we argue, is a notable omission since information effects in the general equity market need not necessarily apply to REITs. For instance, there is consensus that REITs present risk/return characteristics that are different from the general stock market (e.g., Glascock, Michayluk, and Neuhauser, 2004). Low and declining correlations between REIT and stock market returns have also been noted.3 Additionally, there is the suggestion that relatively mature REITs now more closely reflect the performance of unsecuritized real estate markets (Ghosh, Miles, and Sirmans, 1996; Chatrath, Liang, and McIntosh, 1999; Lin and Yung, 2006; among others). Along these lines, …