Short Sales and Fundamental Value: Explaining the REIT Premium to NAV

46 Pages Posted: 7 Sep 2009 Last revised: 24 May 2012

See all articles by Dirk Brounen

Dirk Brounen

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

Multiple version iconThere are 3 versions of this paper

Date Written: September 7, 2009

Abstract

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.

Keywords: REITs, NAV, Short Sales, Short Sale Constraint, Fundamental Value

JEL Classification: G0, G14, G19

Suggested Citation

Brounen, Dirk and Ling, David C. and Porras Prado, Melissa, Short Sales and Fundamental Value: Explaining the REIT Premium to NAV (September 7, 2009). Available at SSRN: https://ssrn.com/abstract=1469454 or http://dx.doi.org/10.2139/ssrn.1469454

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 1 0408 2371 (Phone)
+31 1 0408 9017 (Fax)

HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/dbrounen

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
120-551-3535 (Phone)

David C. Ling

University of Florida - Hough Graduate School of Business Administration ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States
(352) 392-0153 (Phone)
(352) 392-0301 (Fax)

Melissa Porras Prado (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Register to save articles to
your library

Register

Paper statistics

Downloads
241
Abstract Views
2,219
rank
126,174
PlumX Metrics