The global REIT market: initial-day performance of IPOs

Abstract

Purpose

This paper aims to investigate whether real estate investment trust (REIT) initial public offerings (IPOs) are exposed to abnormal initial-day performance. Previous studies have predominantly focused on REITs listed in the USA and Australia, only a few studies have utilised a multi-country approach and only one study has used a multi-region approach. This paper adds to the literature by, for a global sample, analysing variables proven important in explaining REIT IPO performance but never used in a global sample before by extending the investigation of initial-day return patterns for new REIT types and by offering the first insights from emerging REIT markets.

Design/methodology/approach

Initial-day raw and abnormal returns were calculated for a sample of 445 IPOs in 26 countries over the period from 1996 to 2014. The returns were partitioned according to a select set of themes and multiple regression analysis was used to isolate the relationship between the explanatory factors and underpricing.

Findings

For the sample as a whole, the mean initial-day raw return is 3.94 per cent and the mean market-adjusted initial-day return is 4.01 per cent. Even though the initial-day return for a REIT IPO typically is positive, negative mean returns are observed for a few countries and during certain years. Investors should note that for European markets, new property type exhibited a robust positive association with abnormal return, and underwriter reputation exhibited a robust negative relationship with abnormal return.

Originality/value

This paper fulfils the need to test important concepts on global REIT IPO markets.

Citation

Brobert, G. (2016), "The global REIT market: initial-day performance of IPOs", Journal of European Real Estate Research, Vol. 9 No. 3, pp. 231-249. https://doi.org/10.1108/JERER-03-2016-0015