ProfileI joined the finance department in the Harbert College of Business at Auburn University in the fall of 2018. I received my Ph.D. in Finance from the University of Florida in 2014. My research interests include the areas of investments, international finance, sovereign risk, credit risk, CDS, and real estate.
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(2023) “The Effect of Market Asset Returns, Economic Conditions, and Firm Fundamentals on Net Lease Capitalization Rates” (with G. Stacy Sirmans, Greg T. Smersh, and Daniel T. Winkler), Journal of Real Estate Research, forthcoming.
AbstractThis study fills a void in the literature by examining real estate capitalization rates for single-tenant, net lease properties. First, we examine cap rate variation in relation to market and firm-level fundamentals using individual transaction data in a multi-stage regression approach. Second, our single-tenant dataset, which allows us to control for characteristics such as industry and tenant credit ratings, gives us unique insight into not only the pricing of cap rates but also their underlying drivers and their relationship to market fundamentals and returns on alternative assets. Using this unique dataset of more than 8,000 single-tenant net lease (STNL) retail property transactions, we develop a quarterly cap rate index controlling for MSA and industry fixed effects, property and lease characteristics, and localized influences such as population density and household income. Third, we examine the effect of excess corporate bond spreads, excess stock returns, stock market indicators, firm financials, and economic and demographic indicators. Finally, we examine the effect on cap rates of MSA characteristics such as size, wealth, poverty, crime, GDP, and growth. The findings show that, besides the systematic risk from stock and bond returns, national and metropolitan economic forces and firm fundamental factors explain variation in cap rates.
Conference Presentations2023 American Real Estate Society
(2022) “Spread Too Thin: REIT Asset Dispersion and Divergence of Opinion” (with Mariya Letdin and G. Stacy Sirmans), Journal of Real Estate Finance and Economics, forthcoming.
AbstractIn this paper we explore the drivers and implications of divergence in investor opinion of firm value. We use dispersion in analyst estimates of Net Asset Value in REITs as a measure of divergence. We find that divergence in opinion of value is positively associated with portfolio geographic diversity, the presence of international buildings, and firm leverage. Portfolio concentration in tertiary versus gateway markets has no effect on dispersion of value estimates. We find that greater divergence in analyst opinion of value predicts lower stock returns and higher return volatility. Consistent with theoretical predictions from Miller (1977), we find that firms for which investors have the highest disagreement on valuation, pessimistic views of investors are not fully incorporated into prices, resulting in lower future returns.
Conference Presentations2021 American Real Estate Society
2019 AREUEA-Nareit Research Conference
(2020) “Betting Against the Sentiment in REIT NAV Premiums” (with Mariya Letdin and G. Stacy Sirmans), Journal of Real Estate Finance and Economics, forthcoming.
AbstractWe dissect REIT NAV premiums and examine their relation to expected returns. More than half of the cross-sectional variation in NAV premiums can be explained by readily observable company characteristics, such as size, property type, location, leverage, and profitability. We empirically decompose NAV premiums into characteristics-driven (fitted) and sentiment-driven (orthogonalized) components. The transient, sentiment-driven component of NAV premiums is strongly negatively related to future returns, whereas the stable, characteristics-driven component is a very weak positive predictor of returns. A long-short investment strategy that purchases (sells short) REITs with the lowest (highest) sentiment-driven NAV premiums generates 9% per year, which is 3% per year more than a strategy based on the raw NAV premium. These results shed light on the role of investor sentiment in REIT pricing and have important implications for REIT active investment management.
Conference Presentations2019 Financial Management Association
2019 American Real Estate Society
(2020) “CDS Momentum: Slow-Moving Credit Ratings and Cross-Market Spillovers” (with Jongsub Lee and Andy Naranjo), Review of Asset Pricing Studies, Volume 11, Issue 2, Pages 352–401.
AbstractThis paper highlights the adverse consequences of sluggish credit rating updates in creating information efficiency distortions and investment anomalies. We first document significant credit default swap (CDS) return momentum yielding 7.1% per year. We further show that cross-market momentum strategies based on information in past CDS performance generates an alpha of 10.3% per year in stocks and 7.3% per year in bonds. These CDS momentum and cross-market effects are stronger among more liquid, informationally rich CDS contracts whose CDS spreads move in anticipation of important, yet slow-moving, credit rating changes.
Conference Presentations2017 Southern Finance Association
2017 Southwestern Finance Association
2015 American Economics Association
2014 XXIII International Rome Conference on Money, Banking and Finance
2014 Financial Management Association
AbstractThis is the first study to analyze REIT Net Asset Value analyst coverage and dispersion. We find that NAV analyst coverage has a positive relationship with REIT value and a negative relationship with REIT volatility. Subsequently we analyze NAV analyst estimate dispersion and find that it has a positive relationship with REIT leverage and volatility. We break down our sample by property type and find that retail REITs have the greatest NAV coverage and hospitality REITs have the greatest NAV analyst dispersion. Finally, we compare the significance of NAV forecast dispersion to earnings (FFO) forecast dispersion. We find that NAV dispersion has a significant negative relationship with REIT value whereas FFO dispersion is not found to have a significant relationship.
Conference Presentations2019 American Real Estate and Urban Economics Association
2018 American Real Estate Society
2018 FSU-UF-UCF Critical Issues in Real Estate Symposium
AbstractThe popularity of real estate investment trusts (REITs) as an investment vehicle and the current record-breaking performance of the stock market in the United States have triggered an increased interest in understanding how REITs perform relative to other investments. Numerous research studies examine whether REITs behave like stocks and bonds and have worked to identify factors that impact REIT returns. Others examine the asset pricing structure of various assets, including REITs, to identify predictive information useful for investors. In this study, we organize this literature into five categories and provide summary information on each area. The categories are: (1) valuation models and REIT returns, (2) REIT return volatility, (3) REIT returns and asset growth, (4) the impact of financial leverage on REIT returns, and (5) REIT returns and investor sentiment. Results are aggregated into a framework highlighting findings that are useful in explaining the REIT return behavior.
(2019) “Observable Agent Effort and Limits to Innovation in Residential Real Estate” (with Justin Benefield and G. Stacy Sirmans), Journal of Real Estate Research, Volume 41, Issue 1, Pages 1-36.
AbstractAlthough agent effort is essential and a given in the residential brokerage market, it is difficult to observe and quantify. We estimate a simultaneous systems model using virtual tours as a proxy for observable agent effort. By studying a period during which a visible technological innovation (virtual tour) was introduced to the market, we are able to show relationships between agent effort, price, and time-on-market. Using the introduction to the market of visual tours to proxy agent effort, we find a positive effect on listing price, selling price, and time-on-market, with no significant effect on the commission rate. The effect is greater for lower-priced homes (3% positive effect) than for higher-priced homes (1.60% positive effect) and the effect is greater for larger brokerage firms versus smaller firms. A return to the agent possibly lower than the prospective cost of the innovation suggests agency costs at the transaction level that might limit innovation in the industry.
Conference Presentations2013 American Real Estate Society
(2016) “Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk” (with Jongsub Lee and Andy Naranjo), Journal of Finance, Volume 71, Issue 4, Pages 1813-1856.
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AbstractUsing five-year credit default swap (CDS) spreads on 2,364 companies in 54 countries from 2004 to 2011, we find that firms exposed to stronger property rights through their foreign asset positions (institutional channel) and firms cross-listed on exchanges with stricter disclosure requirements (informational channel) reduce their CDS spreads by 40 bps for a one-standard‐deviation increase in their exposure to the two channels. These channels capture effects beyond those associated with firm- and country-level fundamentals. Overall, we find that firm-level global asset and information connections are important mechanisms to delink firms from their sovereign and country risks.
Conference Presentations2013 Southern Finance Association
2013 China International Conference in Finance
2013 WU Gutmann Symposium
2013 SFS Finance Cavalcade
(2015) “Determinants of Mortgage Interest Rates: Treasuries versus Swaps” (with G. Stacy Sirmans and Stanley Smith), Journal of Real Estate Finance and Economics, Volume 50, Pages 34-51.
AbstractThe 10-year Treasury rate has long been considered the primary determinant of 30-year mortgage interest rates. The contemporaneous 10-year LIBOR swap rate is shown to better explain the contemporaneous mortgage rate than the contemporaneous 10-year Treasury rate. This result appears to hold over most of the sample period, 1987–2011, using a variety of statistical tests. Given the long-held belief that the mortgage rate is best explained by the 10-year Treasury rate, this paper makes an important contribution to the literature by demonstrating that the swap rate is superior.
Conference Presentations2012 American Real Estate Society
AbstractThis study reviews the history of property tax initiatives in the United States. Major initiatives include California's Proposition 13, Florida's "Save Our Homes" amendment, and Massachusetts' Proposition 2½. Enacting some type of limitation is most appealing when taxpayers feel overtaxed and underserved. There is some evidence to show that tax and expenditure limitations do bring local governments more in line with voter preferences. Tax limitation initiatives are often funded by vested special interests and are not pure grassroots movements. Studies show that tax limitation initiatives have a negative effect on education through lower teacher salaries and lower student test scores. Studies also show that other public service areas such as fire protection are also negatively affected.
Working Papers and Works Near Completion
“Implied Asset Return Profiles, Stock Returns, and Firm Fundamentals” (with Jongsub Lee and Andy Naranjo).
AbstractWe introduce a novel approach to ascertain firms’ unobserved asset return distribution implied by the joint pricing of equity and credit securities within a structural framework. Motivated by Q-theory, we propose a two-factor model that captures asset growth and risk-shifting effects on stock returns. We show that strong asset returns representing systematic growth options predict higher stock returns, whereas shifting risk from equity to credit forecasts lower stock returns. We also find that the performance of many popular stock market factors (that overlook the optionality of equity) are significantly improved after controlling for asset-level risk-shifting exposure.
“Sovereign Overhang and the Integration of Equity and Credit Markets Around the World” (with Jongsub Lee and Andy Naranjo).
AbstractAs governments around the world steadily assume greater financial risk, there is concern about the growing sovereign risk that overhangs the private sector. Using a sample of 2,430 firms in 52 countries, we find that firms' equity and credit returns exhibit higher $R^2$s and are more tightly integrated in environments with greater sovereign risk. As such, emerging economies often exhibit strong equity-credit integration despite severe impediments to arbitrage. We find that sovereign risk contributes to economic policy uncertainty, and sovereign-to-corporate spillovers are mitigated by strong legal institutions. We provide evidence that elevated sovereign risk drives information to be revealed through credit markets and dampens reactions to firm-level information events. This study shows that sovereign risk plays a prominent role in the linkage between firms' equity and credit securities.
“Related Securities and the Cross-Section of Stock Return Momentum: Evidence from Credit Default Swaps (CDS)” (with Jongsub Lee and Andy Naranjo).
AbstractWe document that stock return momentum strategies earn 20% more per year among firms with strong alignment in their past equity and credit returns than firms with diverging returns across these two markets. Using structural Q-theory, we show information in both equity and credit from the full liability side of a firm’s balance sheet reveals unobserved asset return momentum that explains cross-sectional variations in stock return momentum. We complement this rationale with limited arbitrage in equity and credit markets to further explain our findings during financial market dislocations. We also show that multi-market related securities signals hedge stock momentum crashes.
Conference Presentations2018 CBOE Conference on Derivatives and Volatility
2017 Numeric Investors
2016 The 14th Paris December Finance Meeting by EUROFIDAI-AFFI-ESSEC
2016 Financial Management Association
2016 Chicago Quantitative Alliance
2016 Northern Finance Association
2016 Financial Econometrics and Empirical Asset Pricing Conference
2016 European Financial Management Association
2016 9th Annual Meeting of the Risk, Banking, and Finance Society
2015 Southern Finance Association
Conference Presentations2nd Place, 2016 Chicago Quantitative Alliance Academic Competition
“Time-Varying Risk Premiums in Real Estate: Evidence from REIT Return Forecasts” (with Craig Henning).
AbstractUsing rigorous econometric tests, we explore a comprehensive set of metrics in their ability to forecast aggregate returns of equity real estate investment trusts (REITs). We show that a significant portion of variation in REIT returns can be predicted out-of-sample within an efficient market, as predictability stems from information connected to a time-varying risk premium. The ratio of paid-in capital to market capitalization is the single best predictor of REIT returns, with out-of-sample $R^2$ statistics of 1.64% and 14.12% at the monthly and annual horizons, respectively. Stripping accumulated depreciation from the balance sheet substantially improves forecasting models, providing investors with significant utility gains and larger Sharpe ratios. Outperforming the total returns from a buy-and-hold strategy proves difficult though, as upside predictability is easier than downside predictability, especially during crises.
AbstractREITs are among the most prolific issuers of preferred equity. We show that the use of preferred equity leads a firm to exhibit an artificially high market-to-book ratio stemming from the discrepancy between redemption value and actual paid-in-capital. The problem is exacerbated in REITs, where accumulated depreciation leads to further deterioration of the book value of common equity (and thus, excessively high market-to-book ratios). We examine these effects in the context of studies on capital structure. We revisit pecking-order theory in REITs using the gross market-to-book ratio, which controls for the accumulated depreciation effect. Gross market-to-book yields far more consistent estimates of the impact of growth opportunities on leverage. It also unveils evidence of market-timing theory in REIT use of preferred equity. REITs issue preferred equity when their gross market-to-book ratio is low. However, the picture continues to be muddied in high-preferred equity REITs. These findings strongly suggest the need for future REIT studies to use undepreciated market-to-book ratios, and to consider the impact of the redemption value effect of preferred equity.
“Credit Default Swaps, Equity Risk, and Corporate Risk-Taking” (with Hong Liu and Kangzhen Liu).
AbstractThis study links the trading of CDS contracts to increased equity risk and reduced corporate risk-taking. Because the CDS hinders successful debt renegotiation with creditors and weakens shareholders' put option to strategically default, equity values of CDS firms are more sensitive to cash flow risk. As a result, we show that the onset of CDS trading is accompanied by a rise in equity market beta and return volatility, particularly for firms with poor credit ratings, high liquidation costs, and broad CDS market depth. In the years after CDS trading begins, we find that firms reduce corporate risk-taking by pushing for diversification across industries, scaling back risky R&D investment, and reducing demand for leverage. Overall, this study highlights the importance of the firm's relationship with creditors for shareholder risk and corporate decision-making.
“Disentangling Investor Response to Shareholder Activism: Value-Adding Versus Risk-Shifting Effects” (with Ryan Flagum and Matt Souther).
“Do CEO Incentives Influence Capital Structure Decisions in Banks?” (with Jim Barth and Nguyen Nguyen).