Three Essays On Real Estate Equities And Real Estate Investment Trusts
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This dissertation consists of three distinct essays. The first essay provides initial empirical evidence on the usefulness of consumer confidence index and investor optimism index in predicting REIT price movements. I find evidence of uni-directional Granger causality from REIT returns to the change in Michigan consumer sentiment index for the period 1978 - 2008. I find a negative and statistically significant relationship between the level of Michigan consumer sentiment index in one month and the FTSE/NAREIT US REIT returns in the next one, six, and twelve months. On the other hand, I find a positive and statistically significant relationship between Yale One-year confidence index of individuals and REIT returns. In the second essay, both exploratory and confirmatory factor analytic techniques are applied to eighteen real estate equity markets using weekly FTSE EPRA/NAREIT data during the period 1997-2009. Results from the common factor analysis with Direct Oblimin rotation suggest three distinct factors during 1997-2007. With a single exception, the national returns fall neatly into three geographical areas: Asia, Europe and North America. Interestingly, Australian returns were associated with Europe rather than the local geographical area of Asia. Results from confirmatory factor analysis to four different models show that the best model is the one with three pure continental factors (Asia, Europe, and North America) during the period 1997-2007. However, analysis for the period 2007-2009 shows that there are two factors only. It seems that the financial crisis has increased the integration of the European and North American real estate equity returns while Asian markets seem to be less related to markets of other continents. The third essay investigates the relationship between financial media content (optimism/pessimism), REIT returns and REIT trading volume. Using computer aided content analysis, I find that high media pessimism predicts downward pressure on REIT prices. There is a negative and significant relation between the percentage of negative words in the financial news and REIT returns. Also, there is a unidirectional Granger causality from pessimism to both REIT returns and volume. Moreover, I document that high media optimism predicts higher REIT volume. In addition, I analyze the relationship between search frequencies in Google (SVI) (a direct measure of investor attention), REIT returns and REIT trading volume. Results show that SVI Granger causes REIT volume.