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Preference for lottery features in real estate investment trusts

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  • Zhu, Zhaobo
  • Harrison, DavidM.
  • Seiler, MichaelJ.

Abstract

This paper provides strong and novel evidence of the preference among investors for lottery-like payoffs by documenting a strong intra-industry MAX effect in REITs. Specifically, REITs with high maximum daily returns (high MAX) over the past 1-month significantly underperform REITs with low maximum daily returns (low MAX) over the same period. Such underperformance is persistent in subsequent months, although the underperformance is significant only in several months. In general, high MAX REITs are smaller and exhibit lower prices and higher idiosyncratic volatility than other REITs. However, firm characteristics cannot explain the MAX effect among REITs. In contrast, the MAX effect could significantly explain the idiosyncratic volatility puzzle among REITs. Moreover, the MAX effect is more pronounced among REITs with low institutional ownerships, while investor sentiment has no significant effect on the MAX effect among REITs.

Suggested Citation

  • Zhu, Zhaobo & Harrison, DavidM. & Seiler, MichaelJ., 2020. "Preference for lottery features in real estate investment trusts," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 599-613.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:599-613
    DOI: 10.1016/j.iref.2020.05.012
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    Cited by:

    1. Xinyi Li & Yuhong Zhang & Xing Zhang & Runtang Gu, 2023. "Analyzing the Relationship between the Features of Direct Real Estate Assets and Their Corresponding Australian—REITs," IJFS, MDPI, vol. 11(1), pages 1-15, February.
    2. Melisa Ozdamar & Levent Akdeniz & Ahmet Sensoy, 2021. "Lottery-like preferences and the MAX effect in the cryptocurrency market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.

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    More about this item

    Keywords

    Lottery preference; MAX Effect; REITs;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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