What Determines Stock Price Synchronicity in REITs?

Richard Chung, Scott Fung, James D. Shilling and Tammie X. Simmons-Mosley

Online First™, 30 June 2010

Abstract

This paper studies the behavior of REIT stock price synchronicity for the years 1997 through 2006. Theory suggests that REIT stock prices should be largely independent of market changes; and, at the very least, REITs should have a low covariance with other assets, including other REIT stocks. The evidence presented below does not support this view. Instead, synchronicity appears to be quite high in the equity REIT market, especially among REITs that larger and more liquid. We also find that REIT stock price synchronicity is negatively related to hedge fund ownership, but positively related to pension fund and insurance company ownership. The evidence further suggests that synchronicity is the highest among industrial and regional mall REITs, and lower among apartment, health care, and mixed property REITs.

Keywords  Asset pricing – Synchronicity – Hedge funds – Other private financial institutions

JEL Classification  G12 – G20 – G23

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