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The purpose of this paper is to analyse the NAV discount of European REITs listed in France, the Netherlands and the UK between 2003 and 2014, considering elements of both “rational” and “noise trader” approaches.

The analysis examines the hypothesis that discounts (premiums) are the result of leverage, size, liquidity, risk, performance, investment activity and sentiment. The regressions are initially run against the traditional NAV discount, subsequently using the unlevered NAV discount measure introduced by Morri et al. (2005) in order to clean out the bias generated by the level of leverage. The NAV discount is then adjusted for investor sentiment (appraisal reduction) with the aim of better identifying firm-specific factors, considering distortions induced by sentiment.

Higher liquidity commands lower discounts for French REITs, while Dutch and British REITs, which trade in markets characterized by a higher number of average daily transactions, do not seem to feature discounts resulting from liquidity. For all three samples, operational risk and performance are significant in explaining the NAV discount, the former having a positive relationship with the discount, and the latter a negative one. When measured using the average sector discount, sentiment has a profound effect on the discount, accounting alone for 10-15 per cent of the explanatory power of the model.

REITs listed in different markets behave differently. When the discount is adjusted in order to remove the bias resulting from the level of debt, the relationship between leverage and the unlevered discount becomes less pronounced in all cases.

The paper considers a new approach to NAV discount puzzle that takes into account market sentiment and appraisals.

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust (A-REIT) market during the last decade. A-REITs were severely affected by the global financial crisis as S&P/ASX 200 A-REIT index-listed property stocks experienced 47 per cent discount to NAV, on average, in 2008–2009 crisis. Since 2013, A-REIT sector has exhibited a strong recovery from the financial crisis and traded at high premiums to date. Understanding the relationship between pricing in the public and private real estate markets has taken on great importance as A-REITs continue to trade at significant premium to NAV unlike their counterparts in the USA and Europe.

This paper follows a rational approach to explain variations in NAV premiums and explores the company-specific factors such as liquidity, financial leverage, size, stock price volatility and portfolio diversification behind the A-REIT NAV premiums/discounts. The study specifies and estimates a model of cross-sectional and time variation in premiums/discounts to NAV using semi-annual data for a sample of 40 A-REITs over the 2008–2018 period.

The results reveal that A-REIT premiums to NAV can be explained not only by the liquidity benefit of listed property stocks but also positive financial leverage effect. During the past decade, A-REITs have followed an aggressive approach in financing their growth by using borrowed funds to purchase assets as the income from the property offsets the cost of borrowing and the risk that accompanies it. Debt-to-equity ratio has to be considered as an important source of NAV premiums as highly geared A-REITs that favoured debt financing over equity financing traded at significant premiums to NAV of their underlying real estate assets.

The paper includes implications for the REIT market investors. The regression analysis shows that specialty A-REITs with a focus on creative market niches traded at higher premiums compared with other property stocks, especially in the post-GFC recovery period. Specialty REITs are more highly valued by the market than their traditional specialised counterparts (e.g. office and retail REITs), and those pursuing a diversified strategy.

This paper presents an Australian case study as the A-REIT market provides a suitable environment for testing the effect of financial gearing on the REIT premium to NAV. The study provides empirical evidence supporting the importance of debt-to-equity ratio in explaining the variation in A-REIT NAV premiums.

The purpose of this paper is to investigate the influence of the Italian real estate investment trusts (REITs)' governance and regulatory structure on the market prices discount to net asset values (NAV).

The hypothesis is that the overall regulatory design and the rules for prudential vigilance (i.e. governance rights, closed‐end form, leverage constraints, and mandatory listing) influence REITs' share value, both as market price and as NAV). In particular, the analysis focuses on the effects of the recent introduction of a shareholders' meeting in the articles of association of newly established REITs that pursues a better alignment of interests between managers and shareholders.

The original results show that the NAV discount decreases as long as time to maturity of the fund decreases. Conversely, the NAV discount is negatively affected by share turnover (as a proxy of the liquidity generated by the mandatory listing provision) and leverage. The regulatory provision of a shareholders' meeting appears to have improved the investors' governance capability having a positive impact on the NAV discount. The different sensitivity of market prices and NAVs to the regulatory variables investigated suggests the need to consider this dichotomy when defining or amending the regulatory set ruling REITs' operations and market dynamic.

This paper is the first in the Italian context to specifically consider the effect of the regulatory environment on the NAV discount. In particular, the effect of the regulatory provision of a shareholders' meeting has never been investigated before.

The closed‐end fund puzzle is one of the most famous unsolved issues in financial economics and as such, over time, it has raised the interest of many authors also in the real estate field. The aim of this paper is both to determine whether the effect of leverage on net asset value (NAV) discount is biased by an accounting effect as well as to investigate the determinants of NAV discount by means of the “rational” approach.

The hypotheses are tested by using both the traditional formula as well as a new, unlevered one to calculate the NAV discount. A best subset analysis is carried out to ascertain the better set of determinants.

The main result of the analysis is that the influence of leverage on the NAV discount is biased by an accounting effect while other factors are highly significant.

This paper is a starting point for additional research on some of the identified factors as well as on similar samples for which a wider set of data is available.

The homogeneity of the Italian real estate investment funds sample, which is not biased by any fiscal effect, and the use of an unlevered formula to calculate NAV discount are important factors when trying to understand the determinants of NAV discount.

Discusses the distinctions between property investment/development companies and property developer/trading companies, and notes the differences in valuation methodology. Explains that the valuation of property investment/development company shares is based on estimated net asset value (NAV), and the process by which the shares may be traded on the stock market at a discount or a premium to this. Identifies the factors which influence the discount or premium to NAV and suggests a framework whereby the shares may be evaluated in a more explicit manner.

The purpose of this paper is to portray the valuation of financial investments as mental time travel.

In a series of thought investments, $1 invested in an investment fund is mentally projected forward in time and then discounted back to the present – with no objective time passing. The thought investments feature symmetric valuation (in which discount rates exactly match projection rates) and asymmetric valuation (in which discount rates and projection rates happen to differ). They show how asymmetric valuation can result in differences between the current personal value and market value of an investment and, by way of real-world illustration, between a closed-end investment fund's net asset value and its market value. The authors explore possible reasons for asymmetric valuation.

Thought investments illustrating mental time travel can be used to help understand both financial investment valuation generally and, more specifically, established explanations of the closed-end investment fund puzzle. The authors show how different expectations, different perceptions of time and risk and different risk and time preferences might help determine value.

There are vast literatures on prospection, discounting and future-orientated or intertemporal decision-making. The authors’ innovation is to illustrate how these mental activities might combine to facilitate financial investment valuation. In particular, the authors show that a low personal discount rate could be a consequence of a shortened perception of future time and vice versa.

Prior literature has shown deviations between ETF prices and their net-asset-value (NAV) to exist. Fulkerson and Jordan (2013, p. 31) question “if there exists a true tradeable strategy” to exploit these inefficiencies. The purpose of this paper is to implement a profitable daily long-short trading strategy based on price/NAV information and explicitly accounting for trading costs.

For a sample of European sector ETFs, the authors analyze gross and net returns of a long-short trading strategy in the capital asset pricing model and Fama-French three-factor model.

The authors document positive gross excess return for the long-short trading strategy in all sample periods, but net excess returns to be positive only between 2008 and 2010.

The results document a profitable long-short trading strategy exploiting deviations between ETF prices and NAV and highlight the impact of trading costs in ETF markets. Due to the limited availability of historic trading cost data, the research uses a comparatively small sample size.

The net profitability of long-short trading in ETFs is only found in times of high uncertainty in the stock market.

The inclusion of trading costs enables a detailed comparison between gross and net returns in ETF trading, addressing potential limits to arbitrage.

The valuation of property companies and fair value accounting for investment properties under IFRS are closely affiliated with each other. This is because property companies are commonly valued using net asset value as a valuation technique. The term net asset value represents the fair value of a property company's assets less its liabilities and therefore can easily be determined, as under IFRS investment property is often reported using a fair value approach. The purpose of this paper is to examine the perception of fair value estimates for many companies' main asset: investment properties. With this it contributes to the stream of real estate finance literature that investigates net asset value deviations from property companies' share prices and to the stream of accounting literature that investigates fair value accounting.

The association between the net asset values of European listed property companies and their market prices are investigated. Observed deviations are related to a wide set of variables using panel (unbalanced) OLS‐regressions.

It is found that net asset value usually departs from the market capitalization of European property companies. It is also found that those deviations are a result of insufficient reliability of fair value estimates of investment properties because of the limitations of appraisals, the diversity of applied approaches in appraising investment properties and the reliability problem for mark‐to‐model approaches usually applied in determining the fair value of investment properties.

This parameter has not been considered before in previous literature.

This article examines whether deviations from fundamental value or closed-end country fund's discounts or premiums forecast future share price returns or net asset returns.

The main empirical (econometric) tool is a vector autoregressive (VAR) model. The authors model share price returns and net asset returns as a function of their lagged values, the discounts or premiums, and a control variable for local market returns. The authors also conduct Dickey Fuller and Granger causality tests as well as impulse response functions.

It was found that deviations from fundamental value do predict share price returns. This predictability is contrary to weak-form market efficiency. Premiums or discounts predict net asset returns but weakly.

The findings point to the idea that the closed-end fund market is somewhat predictable and inefficient (in its weak form) since the market appears to be able to anticipate a fund's future returns using information contained in the premiums (or discounts). In particular, the market has the ability to anticipate future behaviour because growing premiums forecast declining share price returns for one or two periods ahead.