Explaining the NAV Discount in REIT pricing - Evidence from the U.S.
Abstract: This paper investigates the relationship between stock price and net asset value (NAV) for 71 real estate investment trusts (REITs) in the U.S. between Q1/1998 and Q4/2018. More specifically, by testing for cointegration, we look for evidence of a long-term equilibrium between stock price and NAV. We use the group-mean panel- dynamic ordinary least-squares (PDOLS) estimator and error correction model (ECM) is to observe the dynamic relationship between price and NAV. In addition, we estimate two fixed-effect models to regress NAV discount against a number of firm- and market-specific factors. Our results show a long-term equilibrium between stock price and NAV, as well as mean-reverting behavior towards this long-term equilibrium both over the long and the short term. By estimating fixed-effect models for firm- and market-specific factors we find that leverage, company size, liquidity, past performance, consumer confidence and business confidence are significantly correlated with U.S. REITs' NAV discounts.
AT THIS PAGE YOU CAN DOWNLOAD THE WHOLE ESSAY. (follow the link to the next page)