Three Essays on Investments
This dissertation consists of three essays on investments. The research seeks to contribute to the finance literature on hedge fund marketing, flows and performance, investor behavior and stock market participation and REIT valuation.In the first essay I study the impact of JOBS (Jumpstart Our Business Startups) Act on hedge fund advertising through hedge fund website creation around JOBS Act. I use a unique hand collected hedge funds’website database to study the changes of hedge funds before and after the JOBS Act. I find that although hedge funds were discouraged to create websites before the JOBS Act, some of them did have websites, especially those that were performing poorly. Creating websites attracted more investor attention and increased flows into funds, but also leaded to worse performance. After JOBS Act, most hedge funds started to create their own websites. Therefore, funds are now equally likely to create websites regardless of their past performance. Websites are no longer able to attract more flows as they did before. In the second essay, using a novel dataset of trades made on a trading simulator in Brazil, we examine the link between simulation experience and (1) the determinants of opening a real money account, and (2) the performance in real money accounts. We find that more active simulator users take on more risk, and simulator users with the best stock level performance (but not portfolio level performance) are more likely to open real money accounts. These users are also likely to be more active real money traders and significantly underperform in their real money trades. These results suggest that without proper edu- cation regarding the hazards of active trading and accurate performance evaluation, stock simulator users may draw incorrect inferences regarding their trading skill and experience real-money underperformance. In the third essay we explore the determinants and value implications of publicly traded real estate companies converting to real estate investment trusts (REITs), which we term REITing, and publicly-traded REITs giving up their REIT status, termed de-REITing. Non- REIT real estate firms that pay relatively high dividends and have high income tax ratios are more likely to convert to a REIT; while REITs that have lower pretax incomes, dividend adjusted operating cash flows, and higher leverage ratios are significantly more likely to de- REIT. REITing generates significant positive abnormal returns (ARs) around the REITing announcement. These positive ARs are concentrated in firms with higher income tax liabil- ities and firms paying larger dividends pre REIT-conversion. De-REITing announcements generate significant negative ARs, which are mitigated when the de-REITing firm has low potential tax liabilities, or when the firm is cash flow constrained with respect to its dividend payment. Based on these results, we argue that the degree to which REITing (de-REITing) decisions are value generating (destroying) depends on the magnitude of potential tax and dividend implications. We also examine the longer run valuation effects of REITing and de-REITing decisions and find no evidence of a reversion of the short-run announcement effects.