Capital-Market Competitiveness and Managerial Investment Decisions: Evidence from Commercial Real Estate

41 Pages Posted: 12 Dec 2016

See all articles by Yael V. Hochberg

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Tobias Muhlhofer

University of Miami - Department of Finance

Date Written: November 10, 2016

Abstract

We investigate the association between capital-market competitiveness and the quality of investment decisions that delegated money managers make. We use commercial property as a natural laboratory, in that this industry contains funds that are traded in segmented capital markets of different competitiveness, but whose managers all choose from the same investment opportunity set. We find that the submarkets most bought by REIT managers outperform the least-bought (or most sold) submarkets, while for our groups of private managers this effect decreases in line with the competitiveness of their capital markets. We also distinguish between movement into submarkets in genuine anticipation of high returns, versus stock chasing, or movement into submarkets that offer availability and therefore easy entry. We find that REITs tend to move into submarkets in anticipation of high returns, while private institutions have more tendency to stock-chase, with such behavior again becoming more prevalent the less competitive the capital market.

Keywords: Competitive Capital Markets, Decision Making, Investment Management, Commercial Real Estate

JEL Classification: G10, G11, R33

Suggested Citation

Hochberg, Yael V. and Muhlhofer, Tobias, Capital-Market Competitiveness and Managerial Investment Decisions: Evidence from Commercial Real Estate (November 10, 2016). Available at SSRN: https://ssrn.com/abstract=2883655 or http://dx.doi.org/10.2139/ssrn.2883655

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Tobias Muhlhofer (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

HOME PAGE: http://tobias.muhlhofer.com

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