REIT Stock Repurchases: Completion Rates, Long-Run Returns, and the Straddle Hypothesis

22 Pages Posted: 12 Apr 2007

See all articles by Gregory L. Adams

Gregory L. Adams

Brigham Young University

James C. Brau

Brigham Young University

Andrew M. Holmes

Brigham Young University

Abstract

This study of real estate investment trusts (REITs) analyzes three possible explanations for the stock price reaction to a repurchase announcement and the subsequent repurchase behavior of managers under each hypothesis. Two of the hypotheses, the signaling hypothesis and the exchange option hypothesis, are established in the existing literature; the third hypothesis is a modification of the exchange option hypothesis. The exchange option hypothesis is extended to allow for additional flexibility in management decisions. This extended exchange option hypothesis is termed the "straddle" hypothesis because it provides management with both a call and put option. The empirical analyses show the straddle hypothesis is a more robust explanation of changes in shares outstanding in the post-announcement period than the alternative explanations.

Keywords: Share repurchase, exchange option, event study, REIT

JEL Classification: G35, G32, R33

Suggested Citation

Adams, Gregory L. and Brau, James C. and Holmes, Andrew M., REIT Stock Repurchases: Completion Rates, Long-Run Returns, and the Straddle Hypothesis. Journal of Real Estate Research, Vol. 29, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=978974

Gregory L. Adams

Brigham Young University ( email )

Provo, UT 84602
United States

James C. Brau (Contact Author)

Brigham Young University ( email )

TNRB 640
Marriott School
Provo, UT 84602
United States
801-318-7919 (Phone)
801-422-0108 (Fax)

HOME PAGE: http://marriottschool.byu.edu/emp/brau/

Andrew M. Holmes

Brigham Young University ( email )

Provo, UT 84602
United States

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