This study examines specific "new information" releases on legislative landmark dates and tests the "dribs and drabs" information production hypothesis between legislative landmark dates, extending Howe and Jain's (2004) tests of the "new information" hypothesis for the 1999 REIT Modernization Act (RMA). The findings reveal significant pricing changes between legislative landmark dates despite the low power of this regulatory event study methodology for long event windows. The findings are robust. Overall, both the "dribs and drabs" information production hypothesis and the "new information" hypothesis are supported during intervals that REIT legislative bills are under consideration for the 1999 RMA.
This study investigates price reactions to both formal announcements and information leaked into the stock market during the series of legislative actions that eventually led to the enactment of the REIT Modernization Act (RMA). The Ticket to Work and Work Incentives Improvement Act of 1999 (Public Law 106-170), which is the final version of the omnibus federal budget bill for the fiscal year 2000, includes the RMA.
The range of dates to be examined begins in early February 1999 and ends in late December 1999. During the 106th Congress, the RMA is introduced as a bill during February 1999 in the Senate and during April 1999 to the House. These bills are consolidated into an omnibus budget bill that is vetoed in September 1999. However, the Real Estate Investment Trust (REIT) legislative language (RMA) from the vetoed bill is read into new bills after the September veto, then engrossed and enrolled in October and November, and finally signed into law on December 17, 1999.
Due to this complex and convoluted process, investors may have inferred from news reports that the RMA legislation was passed or not passed several times during the legislative process. As a result, the equilibrium market price process for this regulated industry is described by either continuous leakages of legislative information or by legislative events or both.
REGULATORY EVENTS AND THE EVENT METHODOLOGY
In prior real estate event study literature, authors typically test single landmark legislative event dates and consider the possibility of a one to several day intervals surrounding those event dates to capture information leakages around that date. For single landmark legislative event dates (and their surrounding windows) in the real estate literature, authors find mixed industry-specific price reactions to legislative changes. For example, Ott and Van Ness's (2002) event study of the 1997 Taxpayer Relief Act (TRA) finds no industry-wide significant price effects on the date that the legislation was signed into law.1 Like the TRA, the RMA has many provisions that may have offsetting price effects. The specific provisions that survive the budget process may be important for pricing REITs, possibly resulting in overall increases and decreases in the perceived value of REITs during the period of time that the legislation was being considered.2
Previously, Howe and Jain (2004) find fourteen possible event dates, collapsing them into six event windows around those dates for RMA.3 Howe and Jain find RMA legislation had a statistically significant influence on REIT pricing only on the day the RMA bill language was introduced into the House and on the date that the final bill is signed.4
NEW INFORMATION HYPOTHESIS
The new information hypothesis assumes that landmark legislative event dates are the dates that new information is released to the markets. In other words, the "new information" hypothesis assumes that landmark legislative event dates are dates that uncertainty is resolved. Consequently, the stock market response on the days that the new information is released to the market should result in overall average prices that are significantly different from the overall average prices before or after the event if the information is important enough to affect prices. …