IDEAS home Printed from https://ideas.repec.org/p/luk/wpaper/8529.html
   My bibliography  Save this paper

The Relationship between Stock Returns and Past Performance of Hotel Real Estate Industry in the US: Is Hotel Real Estate prone to overinvestment

Author

Listed:
  • Minye Zhang
  • Yongheng Deng

Abstract

Hotel real estate industry is an important economy in the U.S. This study examines the return patterns of hotel real estate stocks in the U.S. from 1990 to 2007. This study utilizes an integrated framework which includes the most critical explanatory variables to investigate the determinants of the contrarian or momentum profits of the hotel real estate industry. The study finds that the magnitude and persistence of future returns of hotel real estate stocks can be predicted based on past returns, past earning surprises, trading volume, firm size, and holding period. The evidence of this paper strongly confirms that short-horizon contrarian profits are partially due to lead-lag effects, while in the intermediate-term price momentum profits and long-term contrarian profits are partially due to the firms’ overreaction to past price. My result tends to support the price overreaction hypothesis, and is clearly inconsistent with the risk-based hypothesis and the underreaction hypothesis. The study also confirms the earning underreaction hypothesis and finds the high volume stocks tend to earn high momentum profits in the intermediate-term. The study finds that the earning momentum effect for hotel stocks is more short-lived in persistence and smaller in magnitude than for the whole market on average. Possible explanation is that products and services of hotel industry are highly perishable. Near term earnings information of hotel stocks could be more easily and precisely estimated and therefore reflected into the prices than what could be done for other industries. The key finding of this study is that price momentum portfolios (or contrarian portfolios) of big hotel firms underperform that of small hotel firms and the hotel price momentum portfolio (or contrarian portfolios) significantly underperform that of the overall market over the intermediate-term (or the long-term). It implies the hotel industry, particularly big hotel firms, have executed more conservative growth strategy after the 1980s’ hotel oversupply and financial problem. It could be also possibly caused by big hotel REITs which are less likely to overinvest compared with the overall stock market. The study suggests that a conservative hotel growth strategy accompanied by an internal-oriented financing policy is appropriate in a period of prosperity.

Suggested Citation

  • Minye Zhang & Yongheng Deng, 2008. "The Relationship between Stock Returns and Past Performance of Hotel Real Estate Industry in the US: Is Hotel Real Estate prone to overinvestment," Working Paper 8529, USC Lusk Center for Real Estate.
    • Handle: RePEc:luk:wpaper:8529
    as

    Download full text from publisher

    File URL: http://lusk.usc.edu/sites/default/files/working_papers/wp_2008-1004.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
    2. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    3. Tobias J. Moskowitz & Mark Grinblatt, 1999. "Do Industries Explain Momentum?," Journal of Finance, American Finance Association, vol. 54(4), pages 1249-1290, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David G. McMillan, 2010. "Present Value Model, Bubbles and Returns Predictability: Sector‐Level Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5‐6), pages 668-686, June.
    2. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23(Q III), pages 36-58.
    3. Kenneth Yung & Yen-Chih Liu, 2009. "Implications of futures trading volume: Hedgers versus speculators," Journal of Asset Management, Palgrave Macmillan, vol. 10(5), pages 318-337, December.
    4. Anchor Lin & Peggy Swanson, 2010. "Contrarian strategies and investor overreaction under price limits," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(4), pages 430-454, October.
    5. Dragota, Victor & Mitrica, Eugen, 2004. "Emergent capital markets' efficiency: The case of Romania," European Journal of Operational Research, Elsevier, vol. 155(2), pages 353-360, June.
    6. Andreas Neuhierl & Michael Weber & Michael Weber, 2017. "Monetary Momentum," CESifo Working Paper Series 6648, CESifo.
    7. Fredj Jawadi & Georges Prat, 2017. "Equity prices and fundamentals: a DDM–APT mixed approach," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 661-695, October.
    8. Ramiah, Vikash & Xu, Xiaoming & Moosa, Imad A., 2015. "Neoclassical finance, behavioral finance and noise traders: A review and assessment of the literature," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 89-100.
    9. Tu, Anthony H. & Wang, Ming-Chun, 2007. "The innovations of e-mini contracts and futures price volatility components: The empirical investigation of S&P 500 stock index futures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(2), pages 198-211, April.
    10. Hannah Lea Hühn & Hendrik Scholz, 2019. "Reversal and momentum patterns in weekly stock returns: European evidence," Review of Financial Economics, John Wiley & Sons, vol. 37(2), pages 272-296, April.
    11. Soemarso Slamet Rahardjo, 2015. "The Role of Speculative Factor in the Indonesian Stock Price Determination," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 69-82, August.
    12. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    13. David G. McMillan, 2010. "Present Value Model, Bubbles and Returns Predictability: Sector-Level Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 668-686.
    14. Roland Rothenstein, 2018. "Quantification of market efficiency based on informational-entropy," Papers 1812.02371, arXiv.org.
    15. Calvet, Laurent-Emmanuel & Grandmont, Jean-Michel & Lemaire, Isabelle, 2018. "Aggregation of heterogenous beliefs, asset pricing, and risk sharing in complete financial markets," Research in Economics, Elsevier, vol. 72(1), pages 117-146.
    16. Grinblatt, Mark & Han, Bing, 2001. "The Disposition Effect and Momentum," University of California at Los Angeles, Anderson Graduate School of Management qt6qg5d62p, Anderson Graduate School of Management, UCLA.
    17. Andrew Coleman, 1999. "Economic Integration and Monetary Union," Treasury Working Paper Series 99/06, New Zealand Treasury.
    18. Barberis, Nicholas & Shleifer, Andrei, 2003. "Style investing," Journal of Financial Economics, Elsevier, vol. 68(2), pages 161-199, May.
    19. Halim, Edward & Riyanto, Yohanes E. & Roy, Nilanjan, 2022. "Sharing idiosyncratic risk even though prices are “wrong”," Journal of Economic Theory, Elsevier, vol. 200(C).
    20. Turan G. Bali & Andriy Bodnaruk & Anna Scherbina & Yi Tang, 2018. "Unusual News Flow and the Cross Section of Stock Returns," Management Science, INFORMS, vol. 64(9), pages 4137-4155, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:luk:wpaper:8529. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Steins (email available below). General contact details of provider: https://edirc.repec.org/data/lcuscus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.