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

36 Pages Posted: 14 Sep 2013

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 - Warrington College of Business Administration

Melissa Porras Prado

New University of Lisbon - Nova School of Business and Economics

Multiple version iconThere are 3 versions of this paper

Date Written: Fall 2013

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.

Suggested Citation

Brounen, Dirk and Ling, David Curtis and Prado, Melissa Porras, Short Sales and Fundamental Value: Explaining the REIT Premium to NAV (Fall 2013). Real Estate Economics, Vol. 41, Issue 3, pp. 481-516, 2013, Available at SSRN: https://ssrn.com/abstract=2325745 or http://dx.doi.org/10.1111/reec.12004

Dirk Brounen (Contact Author)

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 )

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3000 DR Rotterdam
Netherlands
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+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 Curtis Ling

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9307 (Phone)
352-392-0301 (Fax)

Melissa Porras Prado

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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