Is the Mean Return of Hotel Real Estate Stocks Apt to Overreact to Past Performance?

Posted: 27 Feb 2010

See all articles by Minye Zhang

Minye Zhang

California State Polytechnic University, Pomona

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Date Written: February 25, 2010

Abstract

This study examines the return patterns of hotel real estate stocks in the U.S. during the period from 1990 to 2007. We find that the magnitude and persistence of future mean returns of hotel real estate stocks can be predicted based on past returns, past earnings surprise, trading volume, firm size, and holding period. The empirical evidence found from this paper confirms that short-horizon contrarian profits can be partially attributed to the firms' overreaction to past price changes. Our results support the contrarian/overreaction hypothesis. The study also confirms the earning underreaction hypothesis and finds the high volume stocks tend to earn high momentum profits in the intermediate-term. The study finds that the earning momentum effect for hotel stocks is more short-lived and smaller in magnitude than the market average. Price momentum portfolios (or contrarian portfolios) of big hotel firms underperform small hotel firms and the hotel price momentum portfolio (or contrarian portfolio) significantly underperform the overall market over the intermediate-term (or the long-term). These findings imply that the U.S. hotel industry, particularly the big hotel firms, have experienced relatively conservative growth in the sample period. It suggests that a conservative hotel growth strategy accompanied by an internal-oriented financing policy is proper in a period of prosperity.

Keywords: Hotel, Stock return pattern, Overreact

Suggested Citation

Zhang, Minye and Deng, Yongheng, Is the Mean Return of Hotel Real Estate Stocks Apt to Overreact to Past Performance? (February 25, 2010). Journal of Real Estate Finance and Economics, Vol. 40, No. 4, 2010. Available at SSRN: https://ssrn.com/abstract=1559230

Minye Zhang (Contact Author)

California State Polytechnic University, Pomona ( email )

United States

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

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