The Pricing of Real Estate Investment Trust Initial Public Offerings

Scott Below, Mir A Zaman and Will McIntosh

The Journal of Real Estate Finance and Economics, 1995, vol. 11, issue 1, 55-64

Abstract: This paper examines the pricing of Initial Public Offerings (IPOs) of Real Estate Investment Trusts (REITs). Unlike standard corporations, evidence suggests that REIT IPOs are correctly priced in the initial market. Significant negative initial-day return for mortgage REITs is found to be a function of using the bid price to calculate returns for those securities, which trade initially over the counter (OTC). If the bid-ask average or the ask price is used in calculating returns, any apparent overpricing disappears. Additionally, we find that once transactions costs are considered, an investor is better off purchasing a REIT on the offering. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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