Reits’ Price Reaction to Unexpected FFO Announcements

This study examines the reaction of REIT prices to unexpected FFO announcements. Using both the traditionally constrained models and an unconstrained model, we find that the market reacts significantly when REITs announce unexpected FFO with a stronger response for positive than negative surprises....

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Bibliographic Details
Published in:The journal of real estate finance and economics 2012-10, Vol.45 (3), p.622-644
Main Authors: Gyamfi-Yeboah, Frank, Ziobrowski, Alan J., Lambert, Lisa Schurer
Format: Article
Language:English
Subjects:
Abnormal returns
Accounting
Business metrics
Cash flow
Dividends
Earnings per share
Economics
Economics and Finance
Efficient markets
Financial Services
Fund management
Hypotheses
Income
Investments
Investors
Market
Net income
Prices
Regional/Spatial Science
REITs
Returns to scale
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Summary:This study examines the reaction of REIT prices to unexpected FFO announcements. Using both the traditionally constrained models and an unconstrained model, we find that the market reacts significantly when REITs announce unexpected FFO with a stronger response for positive than negative surprises. Also, we find that FFO explains significantly more variance in abnormal returns than net income supporting our conjecture that FFO, being more accurately reflective of cash flow, provides more useful information to investors than traditional GAAP measures. Our results are robust to different specifications. The results also suggest that the traditional approaches have been misspecified.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-010-9291-y