Asset Productivity, Local information Diffusion, and Commercial Real Estate Returns

53 Pages Posted: 9 Jul 2020 Last revised: 8 May 2021

See all articles by David C. Ling

David C. Ling

University of Florida - Hough Graduate School of Business Administration

Chongyu Wang

The University of Hong Kong

Tingyu Zhou

Florida State University

Date Written: May 7, 2021

Abstract

An extensive literature finds that indices of returns on equity real estate investment trusts (REITs) predict return indices in the private commercial real estate (CRE) market. Using a novel geographically weighted proxy for the quarterly performance of the property types within the local markets in which a REIT is invested, or property portfolio return (PPR), we find a “private predicts public” result in a cross-sectional, firm-level context. This finding suggests that geographically dispersed information and investors’ limited attention can delay timely stock price adjustments. Our findings also suggest it is the diffusion of information about “local” price changes, rather than local supply elasticities, regulatory constraints, the degree of local information risk, current rental income, or local liquidity that predicts REIT returns. The PPRs associated with REIT allocations to major “gateway” markets are more predictive of REIT returns than the property portfolio returns produced by allocations to secondary and tertiary markets. This study improves our understanding of the speed at which “local” information about the perceived productivity of a firm’s assets is capitalized into stock prices.

Keywords: Commercial real estate returns, Local information diffusion, Return predictability, REITs

JEL Classification: G11, G12, D82, R11

Suggested Citation

Ling, David C. and Wang, Chongyu and Zhou, Tingyu, Asset Productivity, Local information Diffusion, and Commercial Real Estate Returns (May 7, 2021). Available at SSRN: https://ssrn.com/abstract=3628872 or http://dx.doi.org/10.2139/ssrn.3628872

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)

Tingyu Zhou

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
111
Abstract Views
706
rank
300,015
PlumX Metrics