Information Precision and Return Co-Movements in Private Commercial Real Estate Markets
Journal of Banking and Finance, Forthcoming
University of St. Gallen, School of Finance Research Paper No. 2015/20
53 Pages Posted: 13 Oct 2015 Last revised: 27 Jul 2022
Date Written: July 21, 2017
Abstract
This paper proposes an empirical framework that is based on pre-trade transparency to test for information-based return co-movements among international commercial real estate markets. We introduce a benchmark portfolio that includes property markets with a higher pre-trade transparency to assess expected returns in less transparent markets. Investors can earn abnormal returns in opaque markets relative to the reference portfolio. Revealed post-trade information in the benchmark portfolio results in spillover effects to less transparent markets. Conditional on the reference portfolio, we analyze learning externalities to less transparent markets. Specially, we identify cultural familiarity as a source of learning-based return co-movements.
Keywords: Commercial real estate, cross-sectional dependence, opaque markets, spatial econometrics, market transparency
JEL Classification: C30, D83, G15, R33
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