The Conditional Performance of REIT Stock Repurchases
Posted: 9 Sep 2005
This paper uses a conditional performance measure to test whether real estate investment trust (REIT) managers announcing stock repurchases have private information about their firms' prospects. We use stock price to condition for public information and measure the managers' implied private information by the covariance between repurchase size and subsequent stock payoffs (or operating performance). Results show that managers have private information but mostly with respect to long-term as opposed to near-term payoffs. We also find that repurchase size is positively related to a stock's idiosyncratic return volatility, perhaps because noisty stocks deviate farther from fundamental value, offering informed managers larger profit potential.
Keywords: REITs, Conditional Performance, Noisy Rational Expectations, Stock Repurchases
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