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Two Essays on Investors' Attention to Economically Linked Firms

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Date Issued:
2017
Abstract/Description:
My first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return performance and/or operational opacity of the tenants who lease their investment properties. Using a hand collected data set identifying the principal tenants of 96 publicly traded REITs, I find those firms with the best performing tenants generate annualized abnormal returns which are approximately six percent higher than those realized by REITs with the worst performing tenants. These results are robust to a variety of model specifications, and a closer inspection of the results reveals these performance differentials are consistent with emerging evidence across the literature suggesting investors' limited attention materially influences the return predictability of assets. With respect to the current investigation, I thus conclude investors' limited attention leads to the failure of REIT prices to fully reflect the valuation implications of their tenants' return performance.My second essay investigates how sophisticated investors, such as short sellers, trade on information along the supply chain. Short sellers are known to be generally better informed than common investors. Given the economic linkages that exist between the suppliers and customers, one would expect short sellers to trade on such information. My results indicate that short interest predicts unexpected earnings news, consistent with short sellers extracting information from economic relationships. When I evaluate stock return and short interests in regression analysis, I find strong negative relation between short interest in supplier firm and the future stock returns for the customer firm for the return in the next month. The negative relation persists for twelve months. I find similar results from portfolio approach. I argue that one plausible channel that explains the information content of supplier (customer) firm's short interest for the customer (supplier) firms is short sale constraints on the customer (supplier) firms. My results are consistent with this explanation. Overall, my findings suggest that short sellers play an important role in the price discovery of related firms on supply chain, beyond their direct effects documented previously.
Title: Two Essays on Investors' Attention to Economically Linked Firms.
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Name(s): Khoshnoud, Mahsa, Author
Chen, Honghui, Committee Chair
Frye, Melissa, Committee Member
Gatchev, Vladimir, Committee Member
Turnbull, Geoffrey, Committee Member
Harrison, David, Committee Member
Roberts, Robin, Committee Member
University of Central Florida, Degree Grantor
Type of Resource: text
Date Issued: 2017
Publisher: University of Central Florida
Language(s): English
Abstract/Description: My first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return performance and/or operational opacity of the tenants who lease their investment properties. Using a hand collected data set identifying the principal tenants of 96 publicly traded REITs, I find those firms with the best performing tenants generate annualized abnormal returns which are approximately six percent higher than those realized by REITs with the worst performing tenants. These results are robust to a variety of model specifications, and a closer inspection of the results reveals these performance differentials are consistent with emerging evidence across the literature suggesting investors' limited attention materially influences the return predictability of assets. With respect to the current investigation, I thus conclude investors' limited attention leads to the failure of REIT prices to fully reflect the valuation implications of their tenants' return performance.My second essay investigates how sophisticated investors, such as short sellers, trade on information along the supply chain. Short sellers are known to be generally better informed than common investors. Given the economic linkages that exist between the suppliers and customers, one would expect short sellers to trade on such information. My results indicate that short interest predicts unexpected earnings news, consistent with short sellers extracting information from economic relationships. When I evaluate stock return and short interests in regression analysis, I find strong negative relation between short interest in supplier firm and the future stock returns for the customer firm for the return in the next month. The negative relation persists for twelve months. I find similar results from portfolio approach. I argue that one plausible channel that explains the information content of supplier (customer) firm's short interest for the customer (supplier) firms is short sale constraints on the customer (supplier) firms. My results are consistent with this explanation. Overall, my findings suggest that short sellers play an important role in the price discovery of related firms on supply chain, beyond their direct effects documented previously.
Identifier: CFE0006755 (IID), ucf:51842 (fedora)
Note(s): 2017-08-01
Ph.D.
Business Administration, Dean's Office CBA
Doctoral
This record was generated from author submitted information.
Subject(s): Market Efficiency -- Investors' Attention -- Short Sellers -- Economic Links -- Supply Chain -- Real Estate Investment Trust
Persistent Link to This Record: http://purl.flvc.org/ucf/fd/CFE0006755
Restrictions on Access: public 2017-08-15
Host Institution: UCF

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