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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26411
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| Title: | Updating Expectations: An Analysis of Post-9/11 Returns |
| Authors: | Kallberg, Jarl
Liu, Crocker H.
Pasquariello, Paolo |
| Keywords: | Abnormal Returns
Market Over-Reaction |
| Issue Date: | 2-Nov-2005 |
| Series/Report no.: | FIN-05-010 |
| Abstract: | This study analyzes how three groups of market participants - insiders,
analysts, and investors - revised their expected returns on New York
Real Estate Investment Trusts (REITs) in response to the catastrophic
events of September 11, 2001. The attack on the WTC represents a unique
experimental setting to evaluate financial markets’ reaction to
external shocks for several reasons. First, these events, of a totally
unanticipated and unprecedented nature, could not have been built into
the market’s expectations; hence, market participants had to learn
something new rather than just recalibrate their expectations on past
occurrences. Second, unlike other studies of market reactions, the
impact of the terrorist attacks on REIT returns was ambiguous, since it
was uncertain if the effect of reduced supply of office space in New
York would outweigh the impact of the negative shocks to the local and
national economy on its demand. Finally, the period of market closure
that followed 9/11 gave these players ample opportunity to reassess
their expectations. Our analysis reveals that, on the day when markets
reopened, REITs with significant exposure to the New York area
outperformed a broad REIT office index by 4.1%. However, we find that,
according to several metrics of real market behavior, this anticipated
superior performance of New York office properties did not materialize.
Consistent with notions of market efficiency, we find that insiders were
the first to lower their expectations (99.9% of their trades in REITs
with New York exposure were sales in the month following 9/11), followed
by analysts (the vast majority of them revised downward their
expectations of NY REIT performance in the first weeks of November
2001), and finally market prices adjusted to reflect the underlying real
market behavior; indeed, abnormal REIT returns had disappeared by mid
November 2001. |
| URI: | http://hdl.handle.net/2451/26411 |
| Appears in Collections: | Finance Working Papers
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