CONCLUSION 8.1 Summary of Main Findings
8.3 Limitations and Recommendation for Future Studies
There are some limitations in our study. Firstly, the use of the COMPUSTAT on-line database inevitably causes the survivorship bias. Also there are still a number of marginal REIT stocks not included in our sample, adding these REITs might change our results to a certain extent.
Secondly, our results for the pre-1990 period might be biased because of the small sample size in early 1980s. Although we have examined this problem by using 3
portfolios in the pre-1990 period, it is still possible that the results are biased by some of the extreme returns.
Thirdly, we have not further separated those REIT with the “UPREIT” and
“DOWNREIT” structures. Ling and Ryngaert (1997) suggest that valuation of these REITs is more difficult, and therefore, mispricing would be stronger in these REITs, and the value anomaly might also be due to these REITs. Also, due to the limitation of data source, we have not further examined the market sector of the value and growth REIT stocks. Further studies could examine the relationship between market sector and the B/M ratio, which may facilitate the interpretation of our results.
Fourthly, we have found some evidence that the leverage of REITs increase significantly during 1990s, when REITs have more growth opportunities. In addition, value REITs portfolio shows the most significant increase of leverage, which would be a sign of a high growth potential in value REITs. Future study can explicitly examine the relationship between REIT growth expectation and its financing activity, in conjunction with the value anomaly.
Fifthly, owing to the limitation of the data source, we did not examine the relationship between the value anomaly and the institutional investor’s ownership. It is probably that the growth REIT stocks have higher institutional ownership, and that the higher involvement of institutions helps to improve the valuation of the growth REIT. A following study could explicitly examine this relationship.
Sixthly, the REIT market provides a good context to examine the relationship between the value anomaly and the valuation uncertainty. It is possible to examine the value anomaly and the valuation uncertainty in other industries, and to test whether the relationship still holds.
APPENDIX
Table a.1 Returns to Value and Growth REIT Portfolios before 1990 (3 Portfolios)
For each year from 1982 to 1990, REITs stocks are assigned to three portfolios based on the value of B/M, calculated as book equity in fiscal end year t-1 divided by market value of equity at the end of June of year t. Re1, Re2, and Re3 are the one-year, two-year, and three-year buy-and-hold return, respectively, beginning July of year t. SRe1, SRe2, and SRe3 are the size-adjusted one-year, two-year, and three-year buy-and-hold return, respectively, beginning in July of year t, defined as raw buy-and-hold return less size-quintile return, where size deciles are based on all REIT stocks. Statistical significance is reported for difference in the values of Q1 and Q3 portfolios, Q1-Q3 Diff. The t-statistic is computed as mean divided by standard error of the annual estimates. To correct for serial correlation in returns induced by overlapping holding periods for return horizons greater than one year, we use the Newey and West (1987) corrected standard error of the means. ***, **, and * indicate significance at better than the 1%, 5%, and 10% levels (two-tailed), respectively.
Source: Author’s calculation.
Variable Q1
(Value) Q2 Q3
(Growth) Q1-Q3 Diff 1982- 1990
Re1 0.088 0.140 0.168 -0.080 *
Re2 0.262 0.421 0.389 -0.127
Re3 0.427 0.680 0.631 -0.204
SRe1 -0.007 -0.002 0.008 -0.015
SRe2 -0.023 0.011 0.013 -0.036 *
SRe3 -0.050 0.035 0.013 -0.063
Table a.2 Returns to Value and Growth REIT Portfolios (Mortgage and Hybrid REITs Excluded)
Re1, Re2, and Re3 are the one-year, two-year, and three-year buy-and-hold return, respectively, beginning July of year t. SRe1, SRe2, and SRe3 are the size-adjusted one-year, two-year, and three-year buy-and-hold return, respectively, beginning in July of year t, defined as raw buy-and-hold return less size-quintile return, where size deciles are based on all REIT stocks.
Statistical significance is reported for difference in the values of Q1 and Q5 portfolios, Q1-Q5 Diff. The t-statistic is computed as mean divided by standard error of the annual estimates. To correct for serial correlation in returns induced by overlapping holding periods for return horizons greater than one year, we use the Newey and West (1987) corrected standard error of the means. ***, **, and * indicate significance at better than the 1%, 5%, and 10% levels (two-tailed), respectively.
Table a.2 Returns to Value and Growth REIT Portfolios
(Using Dividend/Price ratio as the criteria for value and growth portfolios)
For each year from 1982 to 1990, REITs stocks are assigned to five quintile portfolios based on the value of D/P, calculated as dividend per share in fiscal year t-1 divided by share price at the end of June of year t. Re1, Re2, and Re3 are the one-year, two-year, and three-year buy-and-hold return, respectively, beginning July of year t. SRe1, SRe2, and SRe3 are the size-adjusted one-year, two-year, and three-year buy-and-hold return, respectively, beginning in July of year t, defined as raw buy-and-hold return less size-quintile return, where size deciles are based on all REIT stocks. Statistical significance is reported for difference in the values of Q1 and Q5 portfolios, Q1-Q5 Diff. The t-statistic is computed as mean divided by standard error of the annual estimates. To correct for serial correlation in returns induced by overlapping holding periods for return horizons greater than one year, we use the Newey and West (1987) corrected standard error of the means. ***, **, and * indicate significance at better than the 1%, 5%, and 10% levels (two-tailed), respectively.
Variable Q1
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