Abstract
This study is the first examination of primary (offer-to-open) and secondary (open-to-close) market returns for REIT initial public offerings (IPOs). Consistent with theories regarding compensation for information production and risk taking during the roadshow, we find significant offer-to-open returns directly related to partial adjustment and demand uncertainty. Alternatively, open-to-close returns are economically small and insignificant, implying that uncertainty is resolved in the primary market. Examining differences across REIT and comparable industrial IPOs, REITs post significantly lower secondary market returns despite similar primary market returns. This suggests that price uncertainty resolves more quickly for REITs, possibly due to higher relative transparency.
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