The Long-Run Performance of REIT Stock Repurchases

Real Estate Economics (Impact Factor: 1.02). 02/2005; 33(2):351-380. DOI: 10.1111/j.1540-6229.2005.00122.x
Source: RePEc


This study investigates the long-horizon performance of open-market stock repurchases for real estate investment trusts (REITs). We develop a new methodology to model the autocorrelation of monthly returns into long-horizon buy-and-hold abnormal return estimators. Serial correlation can introduce bias (autocorrelation bias) because the bid-ask bounce may affect monthly returns for sample firms and non-sample firms in a different fashion. Previous long-horizon event studies have overlooked this source of bias. There is compelling evidence that the market underreacts to the stock repurchase announcements. The evidence holds for different measures of the variance and the effects of cross-correlation of abnormal returns. Results are also robust to the traditional buy-and-hold abnormal return and the wealth relative estimators. We investigate the nature of the underreaction and find strong support for the undervaluation hypothesis. Copyright 2005 by the American Real Estate and Urban Economics Association

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    • "Brau and Holmes conclude that the abnormal returns around REIT repurchase announcements are driven by a managerial signal of undervaluation. Giambona, Giaccotto, and Sirmans (2005) extend these findings to long term returns following repurchase announcements and find strong support for a signal of undervaluation. Adams, Brau, and Holmes (2007) refine this finding and show that the announcement day return and subsequent managerial behavior are consistent with repurchases creating an option to exploit future information asymmetries. "
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    ABSTRACT: We examine REITs at the announcement of plans for open market repurchases and determine the impact of these announcements on competing REITs. Consistent with prior research, we find evidence of significant positive returns to the repurchasing firms, on average, at announcement. We do not find evidence of a significant reaction for rival REITs. When we divide the sample based on sign of the announcement day returns to the repurchasing REITs, we find the impact for rivals differs. When there is a positive announcement effect for the repurchasing REIT, rivals do not react. When there is a negative announcement effect for the repurchasing REIT, rivals also have significant negative returns.
    SSRN Electronic Journal 01/2009; DOI:10.2139/ssrn.1324322
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    • "That is, unlike the other hypotheses, the signaling hypothesis makes no indications that the magnitude of the repurchase announcement reaction is option based. Previous literature (e.g., Ikenberry, Lakonishok, and Vermaelen, 1995; and Giambona, Giaccotto, and Sirmans, 2005) documents that outside investors typically under-react to share repurchases. That is, outside investors do not immediately fully impound management's signal into the stock price. "
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    ABSTRACT: This study of real estate investment trusts (REITs) analyzes three possible explanations for the stock price reaction to a repurchase announcement and the subsequent repurchase behavior of managers under each hypothesis. Two of the hypotheses, the signaling hypothesis and the exchange option hypothesis, are established in the existing literature; the third hypothesis is a modification of the exchange option hypothesis. The exchange option hypothesis is extended to allow for additional flexibility in management decisions. This extended exchange option hypothesis is termed the ‘‘straddle’’ hypothesis because it provides management with both a call and put option. The empirical analyses show the straddle hypothesis is a more robust explanation of changes in shares outstanding in the postannouncement period than the alternative explanations.
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    ABSTRACT: This study examines whether the announcement of real estate investment trust (REIT) open-market stock repurchase programs contain information content about future operating performance over the period 1990–2001. We find no evidence that REIT stock buybacks are positively related to the operating performance. In fact, the operating performance of our sample REIT firms peak at the repurchase announcement year and deteriorate in the years following the announcement of share repurchases. Nevertheless, the sample REITs show higher levels of post-repurchase operating performance when compared to those of the pre-repurchase period. Additionally, our regression analysis shows that changes in future operating performance can explain the positive announcement effect.
    The Journal of Real Estate Finance and Economics 08/2009; 39(4):439-449. DOI:10.1007/s11146-008-9121-7 · 0.88 Impact Factor
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