Insider Trading in REITs: Evidence from Informed Stock Option Exercise Around Seasoned Equity Offerings

Brandon Cline, Xudong Fu, Thomas Springer and Tian Tang

Journal of Real Estate Research, 2014, vol. 36, issue 4, 511-540

Abstract: By merging real estate investment trust (REIT) seasoned equity offering (SEO) data with executive option exercise data, we investigate insider trading implications around REIT SEOs. Event study results show persistent negative abnormal returns for long-term SEO aftermarket performance. After isolating ‘‘strategic’’ option exercises of REIT insiders around the SEO, we assess whether REIT insiders can benefit from asymmetric information. We find enhanced exercise activity around the SEO consistent with REIT executives acting on insider information that the REIT is overvalued at the SEO. However, when exercise activity is linked to long-term performance, the results show that REIT insiders are not especially skilled in identifying which SEOs will underperform.

Date: 2014
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DOI: 10.1080/10835547.2014.12091400

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