Real Estate Commons^™

The Consequences Of Reit Index Membership For Return Patterns, Andrey Pavlov, Eva Steiner, Susan Wachter

Eva Steiner

We study the impact of S&P index membership on REIT stock returns. Given the hybrid nature of REITs, their returns may become more like those of other indexed stocks and less like those of their underlying properties. The existing literature does not offer clear predictions on these potential outcomes. Taking advantage of the inclusion of REITs in major S&P indexes starting in 2001, we find that shared index membership significantly increases the correlation between REIT returns after controlling for the stock characteristics that determine index membership. We also document that index membership enhances the link between REIT stock returns and …

Leverage, Volatile Future Earnings Growth And Expected Stock Returns, Jamie Alcock, Eva Steiner, Kelvin Jui Keng Tan

Eva Steiner

We provide theory and evidence to complement Choi's [RFS, 2013] important new insights on the returns to equity in `value' firms. We show that higher future earnings growth ameliorates the value-reducing effect of leverage and, because the market for earnings is incomplete, reduces the earnings-risk sensitivity of the default option. Ceteris paribus, a levered firm with low (high) earnings growth is more sensitive to the first (second) of these effects thus generating higher (lower) expected returns. We demonstrate this by modeling equity as an Asian-style call option on net earnings and find significant empirical support for our hypotheses.

Reit Capital Structure Choices: Preparation Matters, Andrey Pavlov, Eva Steiner, Susan Wachter

Eva Steiner

Sun, Titman, and Twite (2015) find that capital structure risks, namely high leverage and a high share of short-term debt, reduced the cumulative total return of US REITs in the 2007-2009 financial crisis. We find that mitigating capital structure risks ahead of the crisis by reducing leverage and extending debt maturity in 2006, was associated with a significantly higher cumulative total return 2007-2009, after controlling for the levels of those variables at the start of the financial crisis. We further identify two systematic cross-sectional differences between those REITs that reduced capital structure risks prior to the financial crisis and those …

Federal Home Loan Bank Advances And Bank And Thrift Holding Company Risk: Evidence From The Stock Market, Scott Deacle, Elyas Elyasiani

Business and Economics Faculty Publications

Using bivariate GARCH models of stock portfolio returns and risk, we find that bank and thrift holding companies that relied the most on Federal Home Loan Bank (FHLB) advances exhibited less total risk and market risk than those that relied on them the least between 2001 and 2012. When we control for differences in holding company size, stock trading volume, residential mortgage lending, and holding company type (bank vs. thrift), the most FHLB-reliant holding companies sustain the aforesaid risk advantages except during the crisis of 2007–2009, when they exhibit greater idiosyncratic risk. The latter finding suggests that investors perceived the …

Cost Of Debt And Federal Home Loan Bank Funding At U.S. Bank And Thrift Holding Companies, Scott Deacle, Elyas Elyasiani

Business and Economics Faculty Publications

We investigate the relationship between the cost of debt issued by bank holding companies (BHCs) and thrift holding companies (THCs) and their use of Federal Home Loan Bank (FHLB) advances. Cost of debt is used as a measure of bank riskiness for the first time in a FHLB study. A two-equation model of FHLB advances and cost of debt is estimated. Three main results are obtained. First, greater reliance on advances by BHCs and THCs is associated with lower cost of debt in the pre-crisis period, and more strongly so during the crisis, because granting of advances sends a positive …

Thought Leaders: Faculty Who Shape Business Theory And Practice Through Research

Business Exchange

Profiles of seven DePaul professors and the research they are conducting in areas as diverse as work-life balance and investor behavior: James D. Shilling, Real Estate Studies; R. David McLean, Investment Management; Kelly Richmond Pope, Accountancy; Andrew Gallen, Marketing; Alyssa J. Westring, Management; William Sander, Economics; and Misty Johanson, Hospitality Leadership.

The Interrelationships Between Reit Capital Structure And Investment, Jamie Alcock, Eva Steiner

Eva Steiner