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REIT Returns and the Brexit Vote

Zimmermann, Sabrina LU (2018) NEKN02 20181
Department of Economics
Abstract
This paper investigates the UK REIT sector in response to the Brexit vote and compares it to the REIT sector of other central European countries. The underlying consideration for the research question is related to the vote’s economical impact on the direct real estate market. The aim of the study is not only to detect whether the stock market reflects the information about a future demand shift in local property markets, but also to further understand the underlying cause of a REIT specific shock from an investor’s perspective. In an event study, based on the market-model, negative abnormal REIT returns of high magnitude are observed for the UK. The remaining countries included in the test, don’t respond to the outcome of the referendum.... (More)
This paper investigates the UK REIT sector in response to the Brexit vote and compares it to the REIT sector of other central European countries. The underlying consideration for the research question is related to the vote’s economical impact on the direct real estate market. The aim of the study is not only to detect whether the stock market reflects the information about a future demand shift in local property markets, but also to further understand the underlying cause of a REIT specific shock from an investor’s perspective. In an event study, based on the market-model, negative abnormal REIT returns of high magnitude are observed for the UK. The remaining countries included in the test, don’t respond to the outcome of the referendum. Guided by this knowledge, a test for market-wide herding within the UK is carried out. Herding behaviour is seen as a potential reflection of investors’ fear. The findings of the paper neglect this hypothesis. However, a cross-sectional regression is applied on the cumulative abnormal returns to uncover if firm specific characteristics contribute to the REIT shock. The test fails to deliver valuable results. Overall, the main findings of the paper suggest, that the stock market reaction carries information about the direct real estate market. The rising return dispersion between individual stocks observed shortly after the news, is seen as weak evidence that investors do not react entirely irrationally to the vote. The paper cannot further specify what rationality and/or arbitrary behaviour led investors to downgrade REIT stocks so drastically in response to the vote. Subsequently, a stock market overreaction to the news cannot be ruled out. (Less)
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author
Zimmermann, Sabrina LU
supervisor
organization
course
NEKN02 20181
year
type
H1 - Master's Degree (One Year)
subject
keywords
Event Study, Brexit, REIT, Real Estate, Economical Shock, Herding Behaviour
language
English
id
8946073
date added to LUP
2018-07-02 15:39:09
date last changed
2018-07-02 15:39:09
@misc{8946073,
  abstract     = {This paper investigates the UK REIT sector in response to the Brexit vote and compares it to the REIT sector of other central European countries. The underlying consideration for the research question is related to the vote’s economical impact on the direct real estate market. The aim of the study is not only to detect whether the stock market reflects the information about a future demand shift in local property markets, but also to further understand the underlying cause of a REIT specific shock from an investor’s perspective. In an event study, based on the market-model, negative abnormal REIT returns of high magnitude are observed for the UK. The remaining countries included in the test, don’t respond to the outcome of the referendum. Guided by this knowledge, a test for market-wide herding within the UK is carried out. Herding behaviour is seen as a potential reflection of investors’ fear. The findings of the paper neglect this hypothesis. However, a cross-sectional regression is applied on the cumulative abnormal returns to uncover if firm specific characteristics contribute to the REIT shock. The test fails to deliver valuable results. Overall, the main findings of the paper suggest, that the stock market reaction carries information about the direct real estate market. The rising return dispersion between individual stocks observed shortly after the news, is seen as weak evidence that investors do not react entirely irrationally to the vote. The paper cannot further specify what rationality and/or arbitrary behaviour led investors to downgrade REIT stocks so drastically in response to the vote. Subsequently, a stock market overreaction to the news cannot be ruled out.},
  author       = {Zimmermann, Sabrina},
  keyword      = {Event Study,Brexit,REIT,Real Estate,Economical Shock,Herding Behaviour},
  language     = {eng},
  note         = {Student Paper},
  title        = {REIT Returns and the Brexit Vote},
  year         = {2018},
}