The Information Content of REIT Short Interest: Investment Focus and Heterogeneous Beliefs

    Authors

    H. H. Chen; D. H. Downs;G. A. Patterson

    Comments

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    Abbreviated Journal Title

    Real Estate Econ.

    Keywords

    STOCK RETURNS; SHORT SALES; OWNERSHIP; MARKET; EXPLANATIONS; RISK; Business, Finance; Economics; Urban Studies

    Abstract

    This article examines real estate investment trusts (REITs) to determine the correspondence between short interest and subsequent prices. The theoretical basis for our tests comes from the overvaluation conditions created by a combination of costly short selling and heterogeneous beliefs. This article exploits the unique characteristics of REITS as they are similar with respect to high dividend payouts and differentiated by underlying real asset investments. An innovative aspect of the methodology involves partitioning firms based on investment focus as a proxy for transparency and as a determinant of heterogeneous beliefs regarding valuation. The findings (i) affirm the information content of REIT short interest and (ii) highlight the importance of investment focus in resolving the divergence in investor opinions of value. Overvaluation conditions exist among REITs with greater short interest and less transparency, whereas such valuation conditions do not appear among transparent REITs, regardless of the level of short selling.

    Journal Title

    Real Estate Economics

    Volume

    40

    Issue/Number

    2

    Publication Date

    1-1-2012

    Document Type

    Article

    Language

    English

    First Page

    249

    Last Page

    283

    WOS Identifier

    WOS:000304313400003

    ISSN

    1080-8620

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