Description:
This article tests the mispricing-based explanation for the cash premium in international and U.S. real estate equities. Exploiting the nature of listed property firms, our results show high cash-to-market (CM) entities outperform low CM counterparts, marking an exception to established literature. Controlling for firm- and country-specific characteristics, the return effect averages at 6.3% per year on international scale as well as 5.5% per year for U.S. firms over the period 1990-2018. Undervalued real estate firms with high cash holdings exhibit the cash premium, which is attributable to market mispricing and, in turn, subject to time-varying sentiment cycles