Does Options Trading Activity Benefit REITs?

George D. Cashman, David M. Harrison and Hainan Sheng

Journal of Real Estate Research, 2023, vol. 45, issue 3, 265-299

Abstract: Options trading on Real Estate Investment Trusts (REITs) has grown exponentially over the past two decades. This article investigates whether, and to what extent, higher levels of active options trading activity materially influence REIT financial market performance. Using a sample of 224 equity REITs, over the period 1996 through 2019, we found REITs with higher levels of options trading activity persistently exhibit enhanced valuations and financial market liquidity. We further found the positive impact of options trading activity on REIT value is not driven by the positive association between options trading activity and market liquidity, but rather is primarily attributable to the enhanced informational efficiency induced by options trading. Taken together, these results provide compelling evidence of the potential benefits of options trading for publicly listed REITs.

Date: 2023
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DOI: 10.1080/08965803.2022.2107155

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