THE ANNOUNCEMENT EFFECTS OF PREFERRED STOCK RE-RATINGS

This paper examines the equity return behavior of firms whose preferred stock ratings have been changed by Standard and Poor's. The evidence indicates that the market anticipates the re-ratings by approximately 40 days for the complete sample. However, the downgrades for the utility subsample do not experience any downward drift before or after the re-rating. In general, these results support the previous findings of Pinches and Singleton (1978) and Weinstein (1977).     

Voting Rights and Market Reaction to Dual Class Common Stock Issues

This paper examines the return of the original class of common stock around the announcement of the creation of a second class of stock. As in previous studies, this one finds a generally ambiguous market reaction on the first public announcement. However, this paper offers new evidence that both the voting rights and the compensation for loss of voting rights are important determinants of the market's reaction. Specifically, it demonstrates that a second class stock issue that contains no compensation for the lost voting rights results in negative returns. When the original stockholders are compensated for lost voting rights, they experience positive abnormal returns.     

Common Stock Returns in Corporate Takeover Bids: The Case of Brokerage House Acquisitions

This paper examines the common stock returns of three groups of bidders that purchased brokerage houses. Only in the cases of horizontal mergers, one brokerage house purchasing another, are there abnormal returns associated with the purchase. Neither bank holding company bidders nor non-financial bidders gain significantly when purchasing a brokerage house. Bank holding company bidders face considerable regulatory delays, and these economic disturbances may eliminate their gains. Bank holding company expansion into these non-bank activities does not appear, at the time of announcement, to either hurt or benefit them; hence, this expansion does not appear to further the loss exposure of the Federal Deposit Insurance Corporation.     

A Test for Price Pressure Effects in Tender Offer Stock Repurchases

The evidence in this paper supports the hypothesis that the previously documented stock price reversal following a tender offer announcement is consistent with a price pressure caused by a temporary shift in the security's demand curve. The authors came to this conclusion by redocumenting the price reversal, by finding an increase in trading volume around the tender offer announcement and expiration, by showing the increase in volume to be larger than expected from only an information effect, and by showing that short selling activity increases after the announcement and before the expiration of the tender offer.     

REIT Returns and Inflation: Perverse or Reverse Causality Effects?

Contrary to the Fisherian theory of interest, previous studies document a negative relationship between REIT (Real Estate Investment Trust) returns and inflation. In this research, we re-examine this perverse inflation behavior by testing for the causal relationships among REIT returns, real activity, monetary policy, and inflation through a vector error correction model. Our results indicate that the observations of REIT returns as perverse inflation hedges are spurious. The observed negative relationship between REIT returns and inflation is in fact a manifestation of the effects of changes in monetary policies. These findings are consistent with Darrat and Glascocks (1989) evidence of monetary effects on REIT returns.     

Volatilities and Momentum Returns in Real Estate Investment Trusts

We examine the relation of time-varying idiosyncratic risk and momentum returns in REITs using a GARCH-in-mean model and incorporate liquidity risk in the asset pricing model. This is important because illiquidity may be more severe for REITs due to the nature of their underlying assets. We find that momentum returns display asymmetric volatility, i.e., momentum returns are higher when volatility is higher. Additionally, we find evidence that REITs with lowest past returns (losers) have higher idiosyncratic risks than those with highest past returns (winners) and that investors require a lower risk premium for holding losers’ idiosyncratic risks. Therefore, although losers have higher levels of idiosyncratic risks, their low risk premia cause low returns, which contribute to momentum. Lastly, we find a positive relation between REITs’ momentum return and turnover.     

The Relative Effect of Property Type and Country Factors in Reduction of Risk of Internationally Diversified Real Estate Portfolios

We examine and test the merits of diversifying portfolios of real estate securities internationally and across property types. Our analysis covers the period January 1990 through July 2005. Using data from the Global Property Research GPR 250 Property Securities Index, which has monthly prices for five property type indexes in 21 countries, we decompose country and property type sources of variation in real estate security returns. We find that property type effects are smaller than country effects. Property type specialization explains only 6% of the variance of national real estate securities index returns. Because property type effects are so small, country diversification is a more effective tool for achieving risk reduction than property type diversification. In addition, we find evidence that the relative importance of country effects is decreasing while that of industry effects is increasing. However, country effects continue to dominate property type effects.     

Introduction to the Special Issue The Maturation of a Developing Industry: REITs in the 1990s

The Journal of Real Estate Finance and Economics -     

The formation of public utility holding companies and their subsequent diversification activity

This paper examines the stock market reaction to announcements that utilities are converting to utility holding companies. There are negative abnormal returns associated with these announcements. Holding companies permit these utilities to diversify beyond the utility industry, and the announcements of their formation may signal the market of their intentions to diversify. The negative abnormal returns associated with these announcements and the negative abnormal returns associated with subsequent announcements of acquisitions are consistent with other research showing that diversifying bidders lose more (or gain less) than non-diversifying bidders.