Hainan Sheng earns 2024 Manuscript Prize for Real Estate Investment Trusts
Hainan Sheng, assistant professor in the Blackwood Department of Real Estate in the Pamplin College of Business, has been awarded the 2024 Manuscript Prize for Real Estate Investment Trusts by the American Real Estate Society.
“I am honored to receive this prestigious recognition,” said Sheng, a co-writer for the paper titled “REIT Option Volume, Retail Investors, and Return Predictability.” “This accolade not only validates the relevance of the research findings but also inspires me to continue exploring new frontiers in the field of commercial real estate.”
Impact of demographics on option market trading
This research explores the impact of evolving investor demographics on option market trading, particularly within real estate investment trusts (REITs) during the COVID-19 pandemic. When people shifted to remote work at the start of the pandemic, they had more free time. This in turn altered investment behaviors.
“This shift was especially pronounced in the public commercial real estate market, where daily trading opportunities attracted increasing attention,” Sheng said. At the same time, lockdowns, travel restrictions, and social distancing measures severely disrupted the public commercial real estate sector, which Sheng said led to unexpected revenue shocks in commercial properties.
This background provided researchers a unique opportunity to analyze how changes in investor composition, especially the increase in retail traders, or non-professional traders, affected the informational dynamics of REIT option markets during a period of unprecedented market volatility.
“Crucially, the findings reveal that the return predictability of options trading is severely compromised when a substantial portion of the trading activity is driven by retail investors, who are generally less informed,” Sheng said.
What this means for the industry
Sheng’s research is the first to clarify the informational role of investor composition in REIT option market trading. It shows how the influx of retail investors can obscure the market signals that professional investors have historically relied on, diluting the overall informativeness of the market.
“The study advances the expansive body of research on option trading by refining the framework for examining the impact of market activity on price discovery, especially highlighting the diminishing return predictability as the proportion of retail investors increases,” Sheng said.
The study also enriches the discourse on the dynamics of the REIT options market, which has seen growing trading activity but limited exploration of price informativeness, Sheng said. The findings provide the first empirical evidence on how retail investor participation specifically affects price signals in the public commercial real estate investments.
This research adds to the understanding of how the commercial real estate market responded to the COVID-19 pandemic by focusing on the shifts in social dynamics and their impact on the informativeness of option trading activity, which offers insight into market behavior during periods of significant volatility and its implications for market participants and policymakers.
This award is sponsored by the National Association of Real Estate Investment Trusts, the global representative for REIT[BS1] s and real estate companies involved in U.S. real estate. The group advocates for REIT-based real estate investments among policymakers and the international investment community.
