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Comovement After Joining an Index: Spillovers of Nonfundamental Effects
Author(s) -
Ambrose Brent W.,
Lee Dong Wook,
Peek Joe
Publication year - 2007
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2007.00182.x
Subject(s) - index (typography) , real estate investment trust , economics , real estate , stock (firearms) , stock market , econometrics , stock market index , context (archaeology) , financial economics , monetary economics , finance , mechanical engineering , paleontology , world wide web , computer science , engineering , biology
This study considers the case of two overlapping categories in the context of recent category models. Specifically, we examine whether investor sentiment and market frictions specific to one category can affect the returns on assets belonging to the other category. With recent additions of several real estate investment trusts (REITs) into general stock market indices as a natural experiment, we find support for spillovers of such nonfundamental effects, as evidenced by the increased return correlation between REITs that remain outside the index and the index stocks. Further analysis reveals that market frictions play a greater role than investor sentiment.