Market reaction to the listing and final prospectus announcements : the case of Singapore REITs

Abstract

This paper adopts an event study methodology to examine the reaction of the Real Estate Investment Trust (REIT) market to two events, namely the listing and final prospectus announcements. On average, it was found that the final prospectus announcements do not influence abnormal returns of the REIT market. On the other hand, the listing event proved to be a more powerful market signal in which the prices of the REIT market reacted positively to listing events in Day -1 and Day 2, with no significant abnormal returns observed on the event day itself.

This paper goes on further to investigate the factors that are behind this positive market signal in the listing event. Results show that the number of IPOs launched (NumIPO), had a significantly negative effect on abnormal returns. The positive effects on the wider REIT market are more pronounced when fewer REIT IPOs enter the market within a period of 30 days as more REIT IPOs may lead to a dilution of market share of capital in the same asset class. The difference of the offering price and closing price on the first day of trading of REIT IPOs was also found to be significant at the 5% level with a negative coefficient.