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http://ssrn.com/abstract=716721
 
 

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Updating Expectations: An Analysis of Post-9/11 Returns


Jarl G. Kallberg


New York University (NYU) - Department of Finance

Crocker H. Liu


Arizona State University

Paolo Pasquariello


The Stephen M. Ross School of Business at the University of Michigan

March 8, 2005

AFA 2006 Boston Meetings Paper

Abstract:     
This study analyzes how three groups of market participants - insiders, analysts, and investors - revised their expected returns on New York Real Estate Investment Trusts (REITs) in response to the catastrophic events of September 11, 2001. The attack on the WTC represents a unique experimental setting to evaluate financial markets' reaction to external shocks for several reasons. First, these events, of a totally unanticipated and unprecedented nature, could not have been built into the market's expectations; hence, market participants had to learn something new rather than just recalibrate their expectations on past occurrences. Second, unlike other studies of market reactions, the impact of the terrorist attacks on REIT returns was ambiguous, since it was uncertain if the effect of reduced supply of office space in New York would outweigh the impact of the negative shocks to the local and national economy on its demand. Finally, the period of market closure that followed 9/11 gave these players ample opportunity to reassess their expectations. Our analysis reveals that, on the day when markets reopened, REITs with significant exposure to the New York area outperformed a broad REIT office index by 4.1%. However, we find that, according to several metrics of real market behavior, this anticipated superior performance of New York office properties did not materialize. Consistent with notions of market efficiency, we find that insiders were the first to lower their expectations (99.9% of their trades in REITs with New York exposure were sales in the month following 9/11), followed by analysts (the vast majority of them revised downward their expectations of NY REIT performance in the first weeks of November 2001), and finally market prices adjusted to reflect the underlying real market behavior; indeed, abnormal REIT returns had disappeared by mid November 2001.

Number of Pages in PDF File: 39

Keywords: Abnormal Returns, Market Over-Reaction, Nonresidential Real Estate, REITs

JEL Classification: G14, R33

working papers series





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Date posted: May 5, 2005  

Suggested Citation

Kallberg, Jarl G. and Liu, Crocker H. and Pasquariello, Paolo, Updating Expectations: An Analysis of Post-9/11 Returns (March 8, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=716721 or http://dx.doi.org/10.2139/ssrn.716721

Contact Information

Jarl G. (Jerry) Kallberg
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0339 (Phone)
212-995-4233 (Fax)
Crocker H. Liu
Arizona State University ( email )
W.P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-3259 (Phone)
480-965-8539 (Fax)
HOME PAGE: http://www.public.asu.edu/~chliu1
Paolo Pasquariello (Contact Author)
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan Street
Room R4434
Ann Arbor, MI 48109
United States
734-764-9286 (Phone)
240-526-7168 (Fax)
HOME PAGE: http://webuser.bus.umich.edu/ppasquar/
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