Short Sales and Fundamental Value: Explaining the REIT Premium to NAV
Erasmus University Rotterdam (EUR) - Department of Financial Management; Erasmus Research Institute of Management (ERIM); Tinbergen Institute
David C. Ling
University of Florida - Hough Graduate School of Business Administration
Melissa Porras Prado
Nova School of Business and Economics
September 7, 2009
This study explores the role of short sale constraints in explaining the variation in premiums to Net Asset Value (NAV) in REIT pricing. We use proprietary information on short sales between June 2006 and September 2008 to examine how short sales and short sale constraints affect the variation in monthly REIT NAV premiums using panel vector autoregression models. We find that variation in short sale activity across individual REITs can account for at least one-third of the variation in NAV premiums. Short sale constraints tend to be binding when there is strong demand and limited supply of shares to short. Excess demand leads to overvaluation and the correction of the overvaluation explains the under performance of premium REITs.
Number of Pages in PDF File: 46
Keywords: REITs, NAV, Short Sales, Short Sale Constraint, Fundamental Value
JEL Classification: G0, G14, G19working papers series
Date posted: September 7, 2009 ; Last revised: May 24, 2012
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