Author
Listed:
- Giacomo Morri
- Alessandro Baccarin
Abstract
This paper analyzes the NAV discount of European REITs listed in France, in the Netherlands and in the United Kingdom between 2003 and 2014 considering both the “rational” and the “noise trader” approaches. The analysis examines the hypothesis that discounts (premiums) are the result of leverage, size, liquidity, risk, performance, investment activity and sentiment. The results on traditional NAV discount are compared with those obtained using an unlevered NAV discount formula introduced by Morri, et al. (2005) that cleans for the bias generated by the level of gearing. Among the main conclusions emerge that REITs in different markets have different behavior. Moreover, the relationship that leverage has with the traditional NAV discount is positive for England and France based REITs, while it is negative for the Netherlands based REITs. When the discount is adjusted to remove the bias due to the level of debt, the relationship between leverage and unlevered discount became less pronounced in all cases. Higher liquidity commands lower discounts for French REITs, while Dutch and British REITs, which trade in markets that are characterized by a higher number of average daily transactions, do not seem to suffer discounts (premiums) derived from liquidity. Operational risk and performance are for all the three samples significant to explain the NAV discount, the first having a positive relationship with the discount, and the second having a negative relationship with it. Later a new formula that adjusts the NAV discount for the investor sentiment is introduced with the aim of identifying better firm specific factors that contribute to the discount in order to clean possible distortions induced by sentiment. Sentiment, when measured using the average sector discount, deeply affects the discount, accounting alone for 10% to 15% of the explicative power of the model considered. The results confirm the findings obtained using non-sentiment adjusted regressions, even if reaching a lower level of R-squared. Changes of behavior between growth periods and during crises are also investigated. A further analysis of the NAV discount in phases of upswing and downturn allows to say that, while fundamental factors are more relevant and stable when the market is growing, price fluctuations during periods of recession are heavily influenced by market sentiment, and fundamentals do not describe the dynamics of the NAV discount in a satisfactory way.
Suggested Citation
Giacomo Morri & Alessandro Baccarin, 2015.
"European REITs NAV Discount: market sentiment and fundamental factors,"
ERES
eres2015_163, European Real Estate Society (ERES).
Handle:
RePEc:arz:wpaper:eres2015_163
Download full text from publisher
More about this item
JEL classification:
- R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
Statistics
Access and download statistics
Corrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arz:wpaper:eres2015_163. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
We have no bibliographic references for this item. You can help adding them by using this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Architexturez Imprints (email available below). General contact details of provider: https://edirc.repec.org/data/eressea.html .
Please note that corrections may take a couple of weeks to filter through
the various RePEc services.