GGeeoorrggiiaa SSttaattee UUnniivveerrssiittyy SScchhoollaarrWWoorrkkss @@ GGeeoorrggiiaa SSttaattee UUnniivveerrssiittyy Real Estate Dissertations Department of Real Estate Fall 12-20-2013 OOnnlliinnee IInnffoorrmmaattiioonn SSeeaarrcchh,, MMaarrkkeett FFuunnddaammeennttaallss aanndd AAppaarrttmmeenntt RReeaall EEssttaattee Prashant Das Ecole hôtelière de Lausanne Follow this and additional works at: https://scholarworks.gsu.edu/real_estate_diss RReeccoommmmeennddeedd CCiittaattiioonn Das, Prashant, "Online Information Search, Market Fundamentals and Apartment Real Estate." Dissertation, Georgia State University, 2013. doi: https://doi.org/10.57709/4782356 This Dissertation is brought to you for free and open access by the Department of Real Estate at ScholarWorks @ Georgia State University. It has been accepted for inclusion in Real Estate Dissertations by an authorized administrator of ScholarWorks @ Georgia State University. For more information, please contact [email protected]. PERMISSION TO BORROW In presenting this dissertation as a partial fulfillment of the requirements for an advanced degree from Georgia State University, I agree that the Library of the University shall make it available for inspection and circulation in accordance with its regulations governing materials of this type. I agree that permission to quote from, to copy from, or publish this dissertation may be granted by the author or, in his/her absence, the professor under whose direction it was written or, in his absence, by the Dean of the Robinson College of Business. Such quoting, copying, or publishing must be solely for the scholarly purposes and does not involve potential financial gain. It is understood that any copying from or publication of this dissertation which involves potential gain will not be allowed without written permission of the author. Prashant Das NOTICE TO BORROWERS All dissertations deposited in the Georgia State University Library must be used only in accordance with the stipulations prescribed by the author in the preceding statement. The author of this dissertation is: PRASHANT DAS Ashalaya Sindhuatoli Gulzarbagh Patna India 800007 The director of this dissertation is: DR. ALAN ZIOBROWSKI Department of Real Estate, J. Mack Robinson College of Business, Georgia State University 35 Broad Street Suite 1404 Atlanta GA USA 30303 ONLINE INFORMATION SEARCH, MARKET FUNDAMENTALS AND APARTMENT REAL ESTATE BY PRASHANT KUMAR DAS A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree Of Doctor of Philosophy In the Robinson College of Business Of Georgia State University GEORGIA STATE UNIVERSITY ROBINSON COLLEGE OF BUSINESS 2013 Copyright by Prashant Kumar Das 2013 ACCEPTANCE This dissertation was prepared under the direction of the PRASHANT DAS Dissertation Committee. It has been approved and accepted by all members of that committee, and it has been accepted in partial fulfillment of the requirements for the degree of Doctoral of Philosophy in Business Administration in the J. Mack Robinson College of Business of Georgia State University. H. Fenwick Huss, Dean DISSERTATION COMMITTEE Dr. Alan J. Ziobrowski (Chair) Dr. Karen M. Gibler Dr. Jonathan A. Wiley Dr. N. Edward Coulson (External, Pennsylvania State University) ABSTRACT ONLINE INFORMATION SEARCH, MARKET FUNDAMENTALS AND APARTMENT REAL ESTATE BY PRASHANT KUMAR DAS OCTOBER 11 2013 Committee Chair: Dr. Alan Ziobrowski Major Academic Unit: Department of Real Estate Using a system of multi-step equations, I examine the association between online rental searches and fundamental apartment real estate market variables namely, vacancy rates, rental rates and real estate asset price returns. I find that consumer real estate searches are significantly associated with the market fundamentals after controlling for known determinants of these variables. In particular, I show that apartment rentals related online searches are endogenously and contemporaneously associated with reduced vacancy rate. However, the association between the searches and rental rates is not significantly detected. The searches are contemporaneously associated with positive return on the appraised values of multifamily assets. There is some evidence that the searches are fundamentally associated with REIT returns in the short run and that REIT investors watch the online search trends to inform their stock pricing decisions. CONTENTS CHAPTER ONE: INTRODUCTION .......................................................................................... 1 OVERVIEW ........................................................................................................................ 1 CONTRIBUTIONS OF THIS DISSERTATION .................................................................. 8 ORGANIZATION ................................................................................................................. 9 CHAPTER TWO: LITERATURE ............................................................................................. 10 The Role of the Internet in Society ....................................................................................... 10 THE I4S IN EMPIRICAL RESEARCH ......................................................................... 10 What is the I4S? .................................................................................................................... 10 The I4S in Socio-Economic Studies ...................................................................................... 12 The I4S in Finance ............................................................................................................... 13 The I4S in Real Estate .......................................................................................................... 14 INFORMATION SEARCH BEHAVIOR ........................................................................ 16 The Nature of Online Information Search ............................................................................ 18 FUNDAMENTALS OF THE APARTMENT MARKETS ......................................... 19 PREDICTABILITY IN ASSET PRICES ....................................................................... 21 Predictability and Market Efficiency ................................................................................... 21 Predictability in Real Estate Returns ................................................................................... 22 PREDICTABILITY AND REAL ESTATE MARKET FUNDAMENTALS ............ 23 SYNTHESIS OF THE LITERATURE ............................................................................ 24 CHAPTER THREE: DATA AND METHODOLOGY ............................................................ 25 Keyword Selection for I4S .................................................................................................... 25 I4S and the Apartment Rental Markets ................................................................................ 27 Stationarity and Seasonality in Time Series Data ................................................................ 28 MODELS ...................................................................................................................................... 36 I4S AND MARKET FUNDAMENTALS ................................................................................... 36 Vacancy Rate ........................................................................................................................ 36 Cause-Effect Relationship between the I4S and VAC .......................................................... 37 Empirical Models for the I4SL and VAC .............................................................................. 38 Two-Stage Least Square (2SLS) Models .............................................................................. 39 Rental Rate ........................................................................................................................... 40 Capitalization Return ........................................................................................................... 41 Empirical Model for Capitalization Return ......................................................................... 42 I4S AND REIT RETURNS.......................................................................................................... 43 Short-Run Abnormal Returns in Apartment REITs .............................................................. 43 Empirical Model for REIT Returns ...................................................................................... 44 Response of REIT returns to Impulse in the I4S ................................................................... 44 ROBUSTNESS TESTS ................................................................................................................ 45 Availability of the I4S ........................................................................................................... 45 Breakpoint Analysis .............................................................................................................. 45 CHAPTER FOUR: RESULTS AND DISCUSSION ................................................................ 47 Association between the I4S and Fundamental Apartment Market Variables ..................... 47 Modeling REIT Returns with the I4S .................................................................................... 51 Before-After Analysis: REIT Returns ................................................................................... 55 Continuously Expanding Re-sampling of REIT Returns ...................................................... 56 Persistence of REIT’s Response to Shocks in the I4S........................................................... 57 CHAPTER FIVE: CONCLUSIONS .......................................................................................... 58 APPENDIX ................................................................................................................................... 65 Note 1: Weekly and Quarterly I4S ....................................................................................... 65 Note 2: Controlling for Investor Searches about ‘REIT’ ..................................................... 65 REFERENCES ............................................................................................................................. 67 EXHIBITS...................................................................................................................................... 76 Tables ................................................................................................................................... 76 Figures ............................................................................................................................... 106 LIST OF TABLES Table 1. Panel Data Summary for Apartment Market Fundamentals ............................................... 76 Table 2. Panel Data Correlation Matrix for Apartment Market Fundamentals ............................... 77 Table 3. Data Summary for Stock Modeling .................................................................................... 78 Table 4. Correlation Matrix for Stock Modeling Data ...................................................................... 79 Table 5. 2SLS Modeling of the Vacancy Rate .................................................................................. 80 Table 6. Rent Modeling .................................................................................................................... 81 Table 7. Capitalization Return Modeling .......................................................................................... 82 Table 8. Weekly REIT Returns and Abnormal Search Activities..................................................... 83 Table 9. Modeling Weekly CRSP/Ziman Multifamily REIT Index Returns Around the Point of First Data Release ............................................................................................................................. 84 Appendix Table 10: List of Metropolitan Statistical Areas included in the Panel Data Analyses.... 85 Appendix Table 11. Direction of Causation between the I4S and VAC........................................... 86 Appendix Table 12. Summary of the I4S across MSAs ................................................................... 87 Appendix Table 13. Summary of Quarterly Vacancy Rates across MSAs ...................................... 88 Appendix Table 14. Summary of Quarterly Apartment Real Rental Rates across MSAs ................ 89 Appendix Table 15. Summary of Apartment Operating Expenses across MSAs ............................. 90 Appendix Table 16. Summary of Return on Appraised Values of Apartments across MSAs ......... 91 Appendix Table 17. Correlation Matrix: Vacancy Rates, I4S and Fitted Vacancy Rates ................ 92 Appendix Table 18. Data Summary for Quarterly REIT Return Modeling ...................................... 93 Appendix Table 19. Correlation Matrix for Quarterly REIT Return Modeling ................................ 94 Appendix Table 20. Quarterly REIT Returns and Fundamentals ..................................................... 95 Appendix Table 21. Contemporaneous Model for REIT Returns .................................................... 96 Appendix Table 22. REIT Returns Modeled with LaggedI4S .......................................................... 97 Appendix Table 23. Sensitivity of REIT Returns to the Selection of Rolling Window (k) for Abnormal I4S Calculation: The Naïve Modeling Approach ............................................................ 98 Appendix Table 24. Sensitivity of REIT Returns to the Selection of Rolling Window (k) for Abnormal I4S Calculation: The CAPM Modeling Approach ........................................................... 99 Appendix Table 25. Sensitivity of REIT Returns to the Rolling Window (k): The Four-Factor Modeling Approach ........................................................................................................................ 100 Appendix Table 26. Modeling REIT Returns with the I4S based on “REIT” as the Search Term 101 Appendix Table 27. Empirically Determined Break Points ............................................................ 102 Appendix Table 28. Univariate Structural Breakpoints .................................................................. 103 Appendix Table 29. Modeling ΔVacancy Rates and I4S ................................................................ 104 Appendix Table 30. Modeling Weekly CRSP/Ziman Multifamily REIT Index Returns Around the Structural Breakpoint ...................................................................................................................... 105