Manipulation in U.S. REIT Investment Performance Evaluation: Empirical Evidence
University of Cambridge - Department of Land Economy; University of Queensland
John L. Glascock
University of Connecticut; European Business School
The University of Cambridge - Department of Land Economy
March 6, 2012
Journal of Real Estate Finance and Economics, Forthcoming
We investigate whether Real Estate Investment Trust (REIT) managers actively manipulate performance measures in spite of the strict regulation under the REIT regime. We provide empirical evidence that is consistent with this hypothesis. Specifically, manipulation strategies may rely on the opportunistic use of leverage. However, manipulation does not appear to be uniform across REIT sectors and seems to become more common as the level of competition in the underlying property sector increases. We employ a set of commonly used traditional performance measures and a recently developed manipulation-proof measure (Goetzmann, Ingersoll, Spiegel and Welch, 2007) to evaluate the performance of 147 REITs from seven different property sectors over the period 1991-2009. Our findings suggest that the existing REIT regulation may fail to mitigate a substantial agency conflict and that investors can benefit from evaluating return information carefully in order to avoid potentially manipulative funds.
Number of Pages in PDF File: 36Accepted Paper Series
Date posted: March 6, 2012
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