Option Trading and REIT Returns

Authors

George D. Cashman, Marquette UniversityFollow
David M. Harrison, University of Central Florida - Orlando
Hainan Sheng, University of Northern Iowa - Cedar Falls

Document Type

Article

Publication Date

Spring 2021

Publisher

Wiley

Source Publication

Real Estate Economics

Source ISSN

1080-8620

Abstract

This article examines the relation between option trading volume and real estate investment trust (REIT) market performance. Specifically, we find that option volume increases are followed by decreases in returns. Furthermore, the portion of option volume that is orthogonal to REIT characteristics drives the observed return predictability relation, thereby suggesting that the return predictability of option trading is (at least partially) attributable to information-based explanations. Finally, consistent with informed traders favoring option market activities due to short-sale costs and/or constraints, we find option based return predictability is more evident within REITs than non-REITs, even though firms within this industry are generally viewed as informationally transparent.

Comments

Accepted version. Real Estate Economics, Vol. 49, No. 1 (Spring 2021): 332-389. DOI. © 2021 Wiley. Used with permission.

Recommended Citation

Cashman, George D.; Harrison, David M.; and Sheng, Hainan, "Option Trading and REIT Returns" (2021). Finance Faculty Research and Publications. 142.
https://epublications.marquette.edu/fin_fac/142