An empirical analysis of investor on disposition effect in the Real Estate Securitization Market
Date Issued
2006
Date
2006
Author(s)
Lin, Tz-Jiunn
DOI
zh-TW
Abstract
Real estate investment trust (REIT) is promoted for improving the liquidity of real estate. If we divide the ownership of real estate into small shares and sell these shares to investors, the liquidity of real estate will be raised. The trading of REITs is similar to that of stock. In stock markets, we find some anomalies from some past studies in investors’ trading behavior. For example, the trading frequency of investors sometimes is excessively high. Such kind of behavior cannot be explained by traditional theories in economics. In recent years, in order to explain such anomalies, behavioral economics, based on investors’ psychological decision process, argues that investors are not completely rational. Behavioral economics provide alternatives to explain some anomalies.
From prospect theory, investors tend to avert risks when accruing gains. On the contrary, investors often seek risks when accruing losses. Disposition effect is a psychological phenomenon developed from prospect theory. It means investors have a behavior of holding losers too long and selling winners too soon. This phenomenon implies that investors do not make decision purely based on current price, but also on a reference price such as purchasing price. The empirical studies of disposition effect in current stock market were conducted in two approaches: abnormal volumes and PGR (proportion of gains realized), PGL (proportion of losses realized). Studies in real estate market had indirectly proved that the disposition effect exists. However, no similar study in REITs market discussed disposition effect. This study shall explore if the disposition effect exists in REITs market.
This study uses American CRSP database to perform cross-sectional analysis. The studying period is from Jan. 2000 to Dec. 2005. The primary objectives of this study are to answer:
1. Does disposition effect exist in REITs market?
2. Under bull market and steady market, do the investors behave differently in REITs market?
According to the model by Ferris et al. (1998), we used trading data to examine the relationship between volume at a given point in time and volume that takes place in the past with different prices. Then we analyze the past price and the abnormal turnover to investigate the existence of disposition effect. At last, we conclude that the evidence to support disposition effect is not consistent in different market conditions. The behavior of investing REITs is related to the characteristics and the trend of REIT. Under bull market, investors will, contrarily, hold winners and sell losers because stock index is rising enormously, which makes investors believe that the index will continue to rise. To sum up, disposition effect is not proved to exist in REITs market.
Subjects
不動產證券化
展望理論
錯置效果
REIT
Prospect theory
Disposition effect
Type
thesis
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