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Systematic Mispricing: Evidence from Real Estate Markets
Author Info
Yang, Changyu
Permalink:
http://rave.ohiolink.edu/etdc/view?acc_num=ucin1563272643127727
Abstract Details
Year and Degree
2019, PhD, University of Cincinnati, Business: Business Administration.
Abstract
This dissertation consists three essays on empirical asset pricing. In Essay I, I conduct a comprehensive analysis of REITs pricing and I find that there is systematics mispricing in REIT markets. In Essay II, I study mispricing by using net asset value of REITs. I find that REIT prices deviate from their net asset value substantially. In Essay III, I study momentum crash and develop a new momentum trading strategy which has higher return and sharp ratio. Essay 1: In this paper we apply recent developments in financial economics, which posit an important role for the leverage of financial intermediaries and limited stock market participation, in understanding real estate returns. We find that luxury consumption, funding liquidity and the capital share of income have significant explanatory power for the cross-section and time series of equity REITs. However, this relationship is the opposite of what we expected, and the results point to a more complex set of findings that are difficult to reconcile with risk-based explanations. Our results suggest systematic mispricing of real estate assets that is heavily influenced by investor sentiment. Essay 2: Institutional investors are assumed to be sophisticated and rational, they are more likely to be the arbitragers who trade against mispricing. However, recent research suggests that institutional investors have a tendency to buy overvalued stock. Focusing on the REIT market, we find REIT stocks deviate substantially from their net asset value (NAV). The long-short strategy based on premium to NAV yields about 1% return monthly. We also find that, instead of correcting mispricing, institutional investors drive REIT prices away from their net asset value. Furthermore, our results may shed light on popular asset pricing anomalies. By checking the premium to NAV iii of each anomaly portfolio, we conclude that ranking of momentum and earning surprise could be used as a proxy for mispricing in REITs market. Essay 3: Despite its high profitability on average, the momentum strategy (Jegadeesh and Titman, 1993) can occasionally experience severe crashes occasionally. While previous studies often focus on market condition (Cooper, Gutierrez, and Hameed, 2004), we study the characteristics of momentum portfolios around these crashes. We show that the short leg of the momentum strategy (the portfolio of loser stocks) tend to have extreme book-to-market ratios right before crashes. This fact helps explain why momentum crashes are often driven by the sharp rebounding of the short leg component. Moreover, incorporating information on book-to-market can improve our ability to forecast momentum crashes. Our finding has two implications. First, momentum investors can improve their returns by utilizing information on stock valuation. Second, understanding what causes the extreme valuation of the short leg of momentum may shed light on the economic force behind momentum crashes.
Committee
Hui Guo, Ph.D. (Committee Chair)
Shaun Bond, Ph.D. (Committee Member)
Brian Hatch, Ph.D. (Committee Member)
Jeffrey Mills, Ph.D. (Committee Member)
Pages
98 p.
Subject Headings
Finance
Keywords
stock market
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Citations
Yang, C. (2019).
Systematic Mispricing: Evidence from Real Estate Markets
[Doctoral dissertation, University of Cincinnati]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1563272643127727
APA Style (7th edition)
Yang, Changyu.
Systematic Mispricing: Evidence from Real Estate Markets.
2019. University of Cincinnati, Doctoral dissertation.
OhioLINK Electronic Theses and Dissertations Center
, http://rave.ohiolink.edu/etdc/view?acc_num=ucin1563272643127727.
MLA Style (8th edition)
Yang, Changyu. "Systematic Mispricing: Evidence from Real Estate Markets." Doctoral dissertation, University of Cincinnati, 2019. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1563272643127727
Chicago Manual of Style (17th edition)
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Document number:
ucin1563272643127727
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© 2019, all rights reserved.
This open access ETD is published by University of Cincinnati and OhioLINK.