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Three Essays on Investments: An Examination of the Effects of Diversification and Taxes

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Date Issued:
2012
Abstract/Description:
Chapter 1 examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin's Q. The diversification benefit comes from both the ability to select better performing property types in (")hot(") markets and the limited exposure to poorly performing property types in (")cold(") markets. Diversified REITs produce higher cash flows relative to equity as a result of a broader opportunity set; moreover, return on assets increases with the degree of diversification, which suggests significant shielding to property-type specific risk. Additionally, results indicate that diversified REITs operate and trade above their contemporaneous predicted values, which are calculated using imputed multipliers from specialized REITs. The evidence shows that the market is operating efficiently and has incorporated this information; diversified REITs Q ratios are significantly greater than specialized REITs.Chapter 2 uses a large sample of municipal bond closed-end funds to examine how tax liability affects seasonal trading. Optimal tax trading dictates that net tax liability be calculated after all trades. Investors' net tax liability is held in a holding account of his or her choosing. This study investigates what happens when there is tax liability in excess of Safe Harbor, and tax holding accounts are liquidated to cover the payments. We find that there exists a pattern of negative returns and increased volume in the month of March that is unexplained by changes in yield. Chapter 3 examines the ex-dividend day effect for municipal bond closed-end. The proposed explanations for this phenomenon are tax effects, short-term trading and/or market microstructure effects. In this study I use a unique set of dividend distributions to provide additional evidence that ex-dividend behavior is related to taxation as well as short-term trading. The sample I use is comprised of dividends in nontaxable closed-end funds, which ordinarily are not subject to Federal Income Tax. However, there is an occasional distribution that is subject to capital gains or ordinary income tax. This provides a unique environment in which to study the ex-dividend price behavior of a fund while eliminating the need for comparisons across funds.
Title: Three Essays on Investments: An Examination of the Effects of Diversification and Taxes.
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Name(s): Hurst, Matthew, Author
Anderson, Randy, Committee Chair
Chen, Honghui, Committee CoChair
Schnitzlein, Charles, Committee Member
Frye, Melissa, Committee Member
Schmitt, Donna, Committee Member
University of Central Florida, Degree Grantor
Type of Resource: text
Date Issued: 2012
Publisher: University of Central Florida
Language(s): English
Abstract/Description: Chapter 1 examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin's Q. The diversification benefit comes from both the ability to select better performing property types in (")hot(") markets and the limited exposure to poorly performing property types in (")cold(") markets. Diversified REITs produce higher cash flows relative to equity as a result of a broader opportunity set; moreover, return on assets increases with the degree of diversification, which suggests significant shielding to property-type specific risk. Additionally, results indicate that diversified REITs operate and trade above their contemporaneous predicted values, which are calculated using imputed multipliers from specialized REITs. The evidence shows that the market is operating efficiently and has incorporated this information; diversified REITs Q ratios are significantly greater than specialized REITs.Chapter 2 uses a large sample of municipal bond closed-end funds to examine how tax liability affects seasonal trading. Optimal tax trading dictates that net tax liability be calculated after all trades. Investors' net tax liability is held in a holding account of his or her choosing. This study investigates what happens when there is tax liability in excess of Safe Harbor, and tax holding accounts are liquidated to cover the payments. We find that there exists a pattern of negative returns and increased volume in the month of March that is unexplained by changes in yield. Chapter 3 examines the ex-dividend day effect for municipal bond closed-end. The proposed explanations for this phenomenon are tax effects, short-term trading and/or market microstructure effects. In this study I use a unique set of dividend distributions to provide additional evidence that ex-dividend behavior is related to taxation as well as short-term trading. The sample I use is comprised of dividends in nontaxable closed-end funds, which ordinarily are not subject to Federal Income Tax. However, there is an occasional distribution that is subject to capital gains or ordinary income tax. This provides a unique environment in which to study the ex-dividend price behavior of a fund while eliminating the need for comparisons across funds.
Identifier: CFE0004549 (IID), ucf:49228 (fedora)
Note(s): 2012-05-01
Ph.D.
Business Administration, Dean's Office CBA
Doctoral
This record was generated from author submitted information.
Subject(s): Diversification -- Taxes -- Municipal Bonds -- Ex-Dividend
Persistent Link to This Record: http://purl.flvc.org/ucf/fd/CFE0004549
Restrictions on Access: campus 2013-11-15
Host Institution: UCF

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