Premium
Short Sales and Fundamental Value: Explaining the REIT Premium to NAV
Author(s) -
Brounen Dirk,
Ling David C.,
Prado Melissa Porras
Publication year - 2013
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/reec.12004
Subject(s) - real estate investment trust , economics , vector autoregression , asset (computer security) , variation (astronomy) , financial economics , value (mathematics) , econometrics , short interest ratio , monetary economics , demand shock , net asset value , real estate , finance , paleontology , context (archaeology) , physics , machine learning , computer science , astrophysics , biology , computer security
This study explores the role of short sale constraints in explaining the variation in premiums to Net Asset Value (NAV) in REIT pricing. We use proprietary information on short sales between June 2006 and September 2008 to examine how short sales and short sale constraints affect the variation in monthly REIT NAV premiums using panel vector autoregression models. We find that variation in short sale activity across individual REITs can account for at least one‐third of the variation in NAV premiums. Short sale constraints tend to be binding when there is strong demand and limited supply of shares to short. Excess demand leads to overvaluation and the correction of the overvaluation explains the under‐performance of premium REITs.