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Option Trading And Reit Returns

Real Estate Economics, Vol: 49, Issue: 1, Page: 332-389
2021
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Article Description

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.

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