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The Long-Run Performance of REIT Stock Repurchases

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Author Info
Erasmo Giambona
Carmelo Giaccotto
C.F. Sirmans

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Abstract

This study investigates the long-horizon performance of open-market stock repurchases for real estate investment trusts (REITs). We develop a new methodology to model the autocorrelation of monthly returns into long-horizon buy-and-hold abnormal return estimators. Serial correlation can introduce bias (autocorrelation bias) because the bid-ask bounce may affect monthly returns for sample firms and non-sample firms in a different fashion. Previous long-horizon event studies have overlooked this source of bias. There is compelling evidence that the market underreacts to the stock repurchase announcements. The evidence holds for different measures of the variance and the effects of cross-correlation of abnormal returns. Results are also robust to the traditional buy-and-hold abnormal return and the wealth relative estimators. We investigate the nature of the underreaction and find strong support for the undervaluation hypothesis. Copyright 2005 by the American Real Estate and Urban Economics Association

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Publisher Info
Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 33 (2005)
Issue (Month): 2 (06)
Pages: 351-380
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Handle: RePEc:bla:reesec:v:33:y:2005:i:2:p:351-380

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  1. Gregory L. Adams & James C. Brau & Andrew Holmes, 2007. "REIT Stock Repurchases: Completion Rates, Long - Run Returns, and the Straddle Hypothesis," Journal of Real Estate Research, American Real Estate Society, vol. 29(2), pages 115-136. [Downloadable!]
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